More recognition of GATA supporter Frank Holmes of U.S. Global Investors

Section:

A Penny for Your Thoughts,
and 1.4 Cents for a Penny

By Floyd Norris
The New York Times
Sunday, April 23, 2006

http://www.nytimes.com/2006/04/22/business/22charts.html?
_r=1&oref=slogin

What happens if a penny is worth more than 1 cent?

That is an issue the United States Mint could soon face if the price
of metals keeps rising. Already it costs the mint well more than a
cent to make a penny.

This week the cost of the metals in a penny rose above 0.8 cents,
more than twice the value of last fall. Because the government
spends at least another six-tenths of a cent -- above and beyond the
cost of the metal -- to make each penny, it will lose nearly half a
cent on each new one it mints.

The real problem could come if metals prices rise so high that it
would be economical to melt down pennies for the metals they contain.

Appearances aside, pennies no longer contain much copper. In the
middle of 1982, after copper prices rose to record levels, the mint
starting making pennies that consist mostly of zinc, with just a
thin copper coating.

But these days, zinc is newly popular. Rising industrial demand and
speculation have sent the price rocketing. Since the end of 2003,
zinc prices have tripled. Gold, by contrast, is up only about 50
percent.

"What is really new in the commodity world is the extent to which
hard commodities have been converted to financial assets through
exchange-traded funds and hedge funds," said Ed Yardeni, the chief
investment strategist of Oak Associates.

"In the late '90s," Mr. Yardeni added, "my hedge fund friends were
all experts in technology. Now all they talk about is zinc, lead,
and oil. There is a lot of money that has poured into these areas."

That may mean that a bubble is brewing, but Mr. Yardeni thinks the
run is not yet over.

Asked if the mint had a backup plan for what it will do if zinc
prices rise far enough that it could pay to melt down pennies, a
spokesman said that such issues were for Congress to decide. Perhaps
the mint could go back to making steel pennies, as it did during
World War II when copper was needed for the war effort.

Pennies, meanwhile, are in high demand. Last year, the mint made 7.7
billion of them -- more than the number of all the other coins it
produced. In the first three months of this year, the pace of penny
production rose to an annual rate of 9 billion -- the highest since
2001.

Why so many? Perhaps there is now some hoarding in expectation that
metal prices will keep rising, but mostly it is an issue of sales
taxes, which in most states are added to the retail price and assure
that the total price of many items will require pennies to be given
in change if a customer pays with dollar bills. That helps explain
why the idea of eliminating the penny has gone nowhere.

So retailers demand pennies from their banks, the banks demand them
from the Federal Reserve, and the Fed orders them from the mint.
Many of the people who get the pennies in change throw them into a
jar, where they may sit for years, requiring the mint to make more
and more of them.

And, at these prices, lose money on every one.

----------------------------------------------------

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----------------------------------------------------

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----------------------------------------------------

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