1 oz American Eagle Silver Coin (various years)*

History

The price of silver rises with inflation

Starting in the early 1960s, the US Government began to run large budget deficits, as revenue from taxes was not sufficient to cover spending related to the Vietnam War and the cost of various economic programmes implemented by different presidents. As deficit spending leads to inflation, silver, as an asset sensitive to inflation, responded by rising in price. This made the public hoard circulating US legal tender silver coinage, as the silver content in the coins was now worth more than the nominal face value depicted on them. To halt the price rise of silver, and thus the subsequent hoarding of coins, the US Treasury actively engaged in managing the price of silver by selling large amounts of the metal from its strategic reserves onto the market. This practice was in place for several years, but the high inflation rate and consequently the high demand for silver persisted relentlessly. Fearing it would lose all silver bullion from its vault, the US Government in 1968 eliminated silver from its legal tender coinage, and in the next three years it stopped supplying silver to the market. The price of silver was left to trade freely, which is exactly what it did, and in the following nine years the price of silver increased from an average of $1.55 to $48.7 per ounce, a staggering increase of over 3000%!

The price of silver American Eagles rises tenfold

Where does this leave the silver American Eagle? Well, when the first American Eagle silver coins were minted in 1986, the average price of silver was $5.47 per ounce and would average around the $5 mark until 2003. Unfortunately, but to some extent predictably, the repetitive nature of wars and their related financial cost, together with various spending programmes that were implemented in the midst of the recession in 2008, led to massive budget deficits in many western countries. Similar to what happened in the 1960s, the combination of wars and deficit spending sparked inflation, which made the silver American Eagles between 2000 and 2011 surge in price by almost 1000 %.

The value of American Eagle silver coins will rise with inflation

Although the world economy has somewhat stabilised since 2008, the underlying fundamental issues which caused silver, and consequently silver American Eagles, to rise in price have yet to be resolved or even to be addressed. Budget deficits remain deeply negative in many developed economies, including the United States, government debt levels are likewise increasing, and the global geopolitical situation is highly tense. The fact that the annual sales of silver American Eagles is still rising in the face of the “economic recovery” is another sign that long-term astute investors in increasingly larger numbers are becoming aware of the true fundamental state of the world economy and are drawing the same logical conclusion: it simply makes perfect sense to accumulate American Eagle silver coins.

By witnessing the growing popularity of other countries’ 24 karat gold bullion coins, of which Canada’s Maple Leaf and Austria’s Philharmonic gold coins are good examples, the United States Mint decided to issue for the first time in its history its own version of a .9999 fine legal tender gold coin. Until 2006, the only American legal tender gold bullion coin available for purchase was the gold American Eagle which, unlike the Gold Buffalo, is a 22 karat coin and is made of gold and a copper - silver alloy. The introduction of the gold American Buffalo coin was also a historical moment for the United States Mint which for the first time issued two separate legal tender gold coins that contained different gold purities.