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This blog discusses The Perth Mint's bullion coins and bars, providing information about our latest designs, mintages, sales volumes and sell outs. On a broader front, we share relevant research and opinions for anyone interested in gold and silver bullion investing.

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Understanding Unallocated

Topics [ depository services store silver store gold ]

EDUCATION

There is a great deal of misunderstanding about The Perth Mint Depository’s unallocated storage. This recent comment on a forum sums up the confusion:

“all their bullion is owned by people who have it in their depository... still trying to figure out how they can sell bullion that belongs to others.”

The Perth Mint website defines unallocated storage thus: “With unallocated storage… clients purchase an interest in a pool of precious metal held by The Perth Mint. The Mint purchases an ounce of precious metal from the spot market for every unallocated ounce it sells to clients. Accordingly every unallocated ounce is 100% backed.”

To clarify this further, I have come up with the following analogy in an effort to minimize continued misunderstanding.

A water utility pumps water from a dam and through a lot of pipes supplies it to your house where you drink it. As water is coming out at one end, it is continuously being pumped in at the other end, so the pipes are always “full”. Therefore, it is possible to measure and calculate how many litres or gallons of water are in the pipes at all times.

Because the water is constantly flowing through the pipes, it is not possible to specifically identify the individual water molecules in the pipes as they are changing from one day to the next. Contrast it with talking about water in a bottle. The individual water molecules in the bottle today will still be in the bottle tomorrow.


The Perth Mint’s unallocated storage can be best explained by saying that we are selling you the water in the pipes. Allocated is like selling you water in a bottle. It might make more sense to make the following substitutions in the text above:

Water utility = Perth Mint
Pumps = acquires
Water = precious metals
Dam = miner
Pipes = operations
Drink = store

With a few minor amendments to the phrasing, it would read like this:
 
The Perth Mint acquires precious metals from a miner and through a lot of operations supplies it to your house where you store it. As precious metal is coming out at one end, it is continuously being acquired in at the other end, so the operations are always “full”. Therefore, it is possible to measure and calculate how many ounces of precious metals are in the operations at all times.

Because the precious metal is continuously flowing through the operations, it is not possible to specifically identify individual precious metal molecules in the operations as they are changing from one day to the next. Contrast it with talking about precious metal in a bottle. The individual precious metal molecules in the bottle today will still be in the bottle tomorrow.


The confusion by the commenter I quoted above is that he is thinking of the Mint’s unallocated storage in terms of static, specific bits of precious metals in our operations. So when we sell a coin, he thinks of it as us selling a bit of precious metal that belongs to Depository clients.

It is more accurate to think of the Mint’s unallocated storage not as STATIC blob of precious metal, but as a FLOW of precious metal.

We use the word “unallocated” because we can’t point to specific molecules of precious metals in our operations and say they belong to our clients – they are always “flowing”. Allocated is different because we pick out (allocate) specific precious metals from the flow and put it aside on a shelf.

Even though unallocated “flows”, because we immediately buy precious metal to replace what we sell, clients can be reassured that the “pipes” are always full (in other words, 100% backed at all times).

Important note: many unallocated “programs” (particularly ones operated by banks) do not operate as I have described above. They may only store a fractional amount and lend out the rest. The Perth Mint does not do this.

 

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Platinum Rebounds

Topics [ platinum bullion coin buy platinum ]

BULLION BARS AND COINS

The Perth Mint introduced the pure platinum Australian Koala bullion coin series in 1988 when bars and coins represented 17% of world platinum demand. The withdrawal of the program in 2001 reflected declining interest in platinum coins and bars, which subsequently slumped to account for less than 2% of annual demand.

But investor interest in platinum is rebounding. Prices have risen strongly on the back of industrial, autocatalyst and jewellery applications. According to a chart published by Johnson Matthey, investors last year were responsible for 8% of annual demand.

   Chart courtesy of Johnson Matthey.

With The Perth Mint on the verge of re-entering the platinum bullion coin market, here’s our 30- second history guide to the rarest of all precious metals:

• pre-Columbian South American Indians used platinum for decorative purposes.

• the first European reference to platinum appeared in 1557 in the writings of the Italian scholar and physician Julius Caesar Scaliger as a description of a mysterious metal found in Central America.

• the name platinum is derived from the Spanish term "platina del Pinto", which literally translates into "little silver of the Pinto River”.

• because of its extremely high melting point, 18th century French glass workers used platinum to make crucibles.

• English chemist William Hyde Wollaston developed a way to process platinum ore into pure malleable form at the beginning of the 19th century.

• compared to gold and silver, platinum exists in very small amounts – about 0.005 parts-per-million in the Earth's crust.

• by far the largest producer of platinum is South Africa. The second largest producer is Russia.

• it requires 10 tonnes of ore to produce just 1oz of platinum.

• all the platinum ever mined would fit in the average living room.

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Sales Record For 2011 1oz Silver Kookaburra

Topics [ silver bullion coins Australian Kookaburra ]

BULLION BARS AND COINS

Silver prices are booming at 31-year highs and so are sales of 1oz Australian Kookaburras.

To date 320,000 2011-dated coins have been shipped and we’re currently processing orders for another 10,000.

In any other year the 1oz Kookaburra would already be sold out. But following spikes in sales during the GFC and the subsequent sell out of 300,000 1oz coins in 2008, 2009 and 2010, we decided to increase the maximum mintage to 500,000.

So this year’s release holds the record as the best-selling 1oz Kookaburra ever. With all previous issues dating back to 1990 subject to the original 300,000 mintage, there is no possibility it can be outsold… until 2012?

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Gold Gobblers: Countries With The Highest Gold Demand

Topics [ gold market gold investment ]

REASERCH AND ANALYSIS

Latest statistics from the World Gold Council show continued voracious appetite from Asia and the Middle East. India heads the list, but when China/Greater China are combined, it easily sits on top. Find out which other countries were most fanatical about gold in 2010 in
The Telegraph
’s ‘Gold Gobblers’ picture show.

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Perth Mint's Investment In Capacity

Topics [ gold market ]

CEO STANDPOINT

This is an exciting year for The Perth Mint. Our capital expenditure programme continues – we will soon be commissioning our latest automatic coining press, to be followed by yet another in a few months. Our upgraded and extended bar casting facility should be running by July and we continue to invest in casting equipment, blank production capacity and surface treatment facilities for coin blanks. Then there are the absolutely necessary investments in waste reduction, efficiency, safety and environmental protection. There is a constant range of challenges we must address!

We have benefited from our investment programme – we would never have been able to meet demand over the last few years without it – but there is an issue which everyone in the precious metal industry faces: feast or famine.

Many of our critical pieces of equipment have only two modes of operation: either they are running at maximum on three shifts, or they are idling. There is rarely an in-between situation. There are times during which demand is so poor that everyone in the company is worried. We get down to one shift operation, shut down certain equipment and cut everything down to the bone. Just when we begin to question the wisdom of the amounts of money we have spent on plant over the last few years, the market suddenly picks up, we have to scramble to start up additional shifts and, before we know it, we have to cut back on accepting orders. It is like having a car with only two positions for the accelerator pedal – idling and “flat out”.

This feast or famine situation arises because the demand for precious metal in small bars or coins is unpredictable and extremely variable. Part of the reason for this is that, as an investment class, precious metal is a relatively small player. All the gold ever mined (just over 160,000 tonnes) would be worth $7 trillion in today’s values – a massive figure. But it pales when you consider that there are said to be financial assets valued at over $120 trillion in the world.

If only a small part of the $120 trillion is shifted into gold the market can easily get overwhelmed.

We will continue to improve our facilities and expand our capacity but we do not expect the “feast or famine” problem to be solved any time soon…

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Another Strong Year For Gold - WGC

RESEARCH AND ANALYSIS

Marcus Grubb, managing director of investment research at the World Gold Council, talks about the outlook for gold prices in 2011.

Related:

Report: Gold Demand Trends 2010 - World Gold Council

The latest Gold Demand Trends report sets out the key factors that drove gold demand in 2010, together with an outlook for 2011.

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