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by Louis Golino for CoinWeek ………

Last year the U.S. Mint saw its numismatic revenue decline by a third as a result of declining sales of gold and platinum coins due to higher underlying precious metal prices and strained collector budgets because of a still-struggling U.S. economy. Silver coins, on the other hand, continued to be profitable for the Mint, and their sales increased.

But rather than try to reverse the trend in gold and platinum coin sales by keeping prices as competitive as possible, which is what most market analysts for any business would suggest, the Mint has raised premiums on all of its precious metal products at a time of declining precious metal prices, virtually ensuring that numismatic revenues decline further unless an enormous amount of very well-heeled buyers comes to the rescue, possibly in hopes of making profits on temporarily low mintage coins.

usmint shield The Coin Analyst: U.S. Mint Raises Premiums on Precious Metal Coins as Metal Prices DeclineEarlier this year, as I discussed previously , the Mint announced new, higher prices on some of its silver-based coins, including the 5 ounce America the Beautiful coins, and American silver eagles in proof and uncirculated finishes. Because those increases were announced as silver prices were declining, I asked the Mint about it, and their response, which was included in my article, essentially argued that the Mint needed to retain the ability to adjust prices “to reflect the changing price of silver,” which is a curious argument when silver prices were declining.

To be sure, there are certainly plenty of non-metal costs involved in the production of collector coins such as labor, machinery, etc. If the Mint had pointed to some of those in its response, it would have been easier to understand the rationale for the increases.

As of Feb. 27 the Mint has gone ahead and implemented a new pricing grid for gold and platinum coins that was published in the Federal Register on February 20 , which raises premiums just as gold and platinum prices have been declining markedly in recent weeks.

Some people say they were trying to get ahead of the curve and expect higher metal prices soon, as many experts do, because of the view that precious metal prices have bottomed out, as sellers reached what is known as capitulation.

But that really misses the point, as the whole point of the grid is to establish fixed premiums at different metal price intervals, so the new grid has nothing to do with expectations of higher metal prices down the road.

The one saving grace of the new grid, and this is something I brought to the Mint’s attention in my inquiries, is that now when platinum prices are increased or decreased, it will be in $50 increments, as is used for gold, not $100 increments as was the case previously.

But if one considers, for example, the 2012 American platinum eagle, which contains one ounce of the white metal, the peculiarity of the new pricing mechanism is abundantly clear. Platinum prices recently declined below the $1600 level, hitting $1575 on February 28, but the platinum eagle coin price was raised to $2,000 the day before.

Those are proof coins and clearly some premium over melt value is understandable, but sales of last year’s coin were already running well below those of prior years. And raising the premium to $400 over melt value hardly seems like a recipe for increasing sales.

So one must ask what is the Mint’s strategy here? Since no one outside the Mint knows for sure, it is hard to say, but a number of possibilities come to mind.

The Mint could well be trying to make up for lost revenue by increasing its profit margins on the numismatic coins it sells with higher premiums over melt value. But, first, those margins are already quite healthy, especially for silver coins, and raising them beyond a certain point seems almost certain to force many buyers to stop buying, reduce their purchases, and quite possibly turn to other areas of numismatics where they may find better opportunity.

In fact, Royal Scandinavian Mint  owner Ola Borgejordet told me today that the Spanish Mint on Feb. 20 announced it was lowering prices on its gold coins in response to lower gold prices, after having increased them in September.

He also added that one needs to bear in mind the other costs of producing coins such as “tool making, the production and preparation of blanks, etc., which could very well have increased. If the U.S. Mint’s reasoning for the increase is the price of precious metals, then this seems odd.”

Again, since the Mint has not made clear the specific rationale for the substantial new premium increases, it is hard to understand what is going on.

The Mint has many times explained that the price grids for precious metal coins were intended to give the Mint flexibility in pricing these coins, and that such a system was better suited to the pricing of numismatic coins than the system used by bullion dealers for their products, which constantly adjusts as metal prices ebb and flow.

It is important to consider also that last year, as I have discussed several times recently in this column, many new mintage lows were reached across a variety of silver and gold product options such as the American gold eagle uncirculated coin, the individual proof gold eagles, and the 5 ounce silver uncirculated coins, which have been selling out in the past few weeks and garnering substantial premiums in the secondary market.

Many experts predict that higher premiums, even when metal prices are down, are likely to further squeeze collectors who simply cannot afford to keep up with all the series they used to collect. One frequently reads online comments from collectors who say they are paring down their purchases as prices rise, and I am doing this myself.

Some people speculate that the Mint is perhaps adopting the approach of many foreign mints that price their collectible precious metal coins way above the melt value of the coins, with the Royal Mint in the UK probably being the best example of that. The Royal Canadian Mint and Perth Mint in Australia also do that though not quite to the same extent.

The idea behind this seems to be that there is a core of collectors and buyers who will pay almost any price to keep their sets updated, or perhaps to speculate and try to make a profit. And the lower mintages would go hand in hand with that approach, which is what foreign mints do to stir up demand.

But that would go against the stated objectives of the U.S. Mint to make its numismatic coins available to a wide audience at the lowest price possible, while still making a profit that is used to help fund other programs of the Mint and to reduce the deficit. Many people forget that numismatic coins are never produced with taxpayer funds.

Moreover, it is evident that the high price/low mintage approach to selling numismatic coins has its limits. The Perth and Royal Mint have both experienced revenue declines in recent years in their numismatic programs, though the Canadian experience has been different. The RCM in the past couple years has vastly lowered the mintages on many of its coins, while issuing a very strong and innovative line of products at different price points. That is partly true of the other two mints as well, but in my view not quite to the same extent. Examples include the 2012 glow-in-the dark dinosaur coin and some of the Titanic releases from the RCM that were inexpensive and achieved quick sell-outs and high secondary market prices. Meanwhile, a lot of Perth and Royal Mint coins have seen their values decline recently.

Like many collectors I was disappointed by the Mint’s recent actions, and I welcome any clarification Mint officials can provide for their rationale. Eventually, if too few people can afford to keep buying the Mint’s precious metal products, especially the higher-priced items, it will no longer be cost effective to even produce them. If not reversed, such trends could ultimately drive collectors away from modern U.S. coins and accelerate the increased interest among U.S. collectors in modern foreign coins, some of which offer great value at relatively little cost over melt value, like the coins of Mexico.

golino portrait thumb The Coin Analyst: U.S. Mint Raises Premiums on Precious Metal Coins as Metal Prices DeclineLouis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.

 

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24 Comments

  1. Louis Golino says:

    I have asked the Mint to provide any info. they can on the reasons for these premium increases, and I will relay that info. in a future column.

    • Matt OConnell says:

      Could it be because the actual availability of real metals is short, but the prices are hidden by the price of paper metals??

  2. Dave in CT. says:

    Louis, your dead on with your views. I just sent over emails to my coin buying group, to let them know you posted another article.
    Thanks, and I enjoyed your latest points here. Look forward to your next one…Dave in CT.

  3. Houston Roy says:

    Mr. Golino: Thank you for your attention to the Mint’s policy. Without you, much of the collector community would not know about these issues. I don’t know anyone that reads the Federal Register (any sane person, that is).

  4. Dave in CT. says:

    Louis, one more thought, I have been getting allot of feedback from my coin guys that I talk with, and they were asking about, or I should say, they would like to hear some comments from Captain Overkill on your articles. I for one, would enjoy that myself. So hey Cap. !, how about adding some of your thoughts on Mr. Golino’s
    articles, that is if your willing to, and we all hope so.. JOO,
    (just our opinions)…..Dave in CT.@friends

  5. V.Kurt Bellman says:

    Louis, I think it’s fairly obvious what’s up, isn’t it? The Mint has decided with most bullion metals a good 18 months off their highs now, the bloom is off the marginal buyer’s rose, and increasingly these products are going to become the realm of the core buyer – the collector, whose perceived “need” to keep their sets complete is more price inelastic than the casual customers’ desire to buy is. If the remaining market again exhibits a desire to pay nearly any price, you can expect premiums to go up. When the Mint thinks they are in a market phase to attract new buyers they compete on price. When it’s retrenchment time, it’s time to soak the core customer.

  6. Leo S. says:

    Louis

    Another thought. With all the world banks and countries adding to their stocks of gold, maybe the U.S. Mint doesn’t want to sell this countries gold stocks off. If they believe that the U.S. dollar is going to be worthless in x amount of time, they may be hoarding their gold and silver for the coming bleak future.

    Paranoid Huh?

  7. Hi Louis,

    The idea behind this seems to be that there is a core of collectors and buyers who will pay almost any price to keep their sets updated, or perhaps to speculate and try to make a profit. And the lower mintages would go hand in hand with that approach, which is what foreign mints do to stir up demand.

    This is pretty much what I think they’re doing. The problem is that to make it work, I think they will need to either find a way to keep their existing sales base or else raise the prices much more dramatically than they already have. As it is, I think total sales losses will outpace any gains they make in increased revenues from the price increases.

    I’m concerned about the future of the Mint’s numismatic gold programs. Increases like this will absolutely kill the First Spouses and could also wreck gold commemorative sales, which are already at record lows. We might also see it hurt the platinum eagle program, which was always small to begin with. The collector base can probably absorb some silver price increases, but how long and how far? I’m not sure the mint understands this stuff is driving off an already overstrained collector base.

    I’ve mentioned this elsewhere but I will not be making further numismatic gold and platinum purchases from the US Mint. The premiums have gotten too high to justify it. I will most likely keep an eye out on the secondary markets and scoop up a proof buffalo once I find one that is both decently priced and in OGP. I’ve already found several that fulfilled one of my criteria but not both.

    Leo, most sales come from sales of bullion rather than numismatic pieces. If the government was going to restrict gold supplies, they would increase the premiums they ask for gold and silver eagles. Numismatic sales are only a very small piece of the US Mint’s sales. Numismatic gold sales in particular are extremely low.

  8. Louis Golino says:

    The Mint just called me, and I will relay that info. shortly.

    The idea is definitely not to model themselves on foreign mints that charge much higher premiums. Remember that even with the latest increases the 5 ounce silver coins still cost less than half of what the Perth Mint and RCM charge for their 5 ounce silver coins.

    Also, I do not think there is any effort to raise prices so that they hold on to our precious metal reserves. As I understand, it’s not even the same metal. The nation’s gold reserves are stored at Fort Knox and at the NY Federal Reserve Bank, whereas the gold and other pm’s used to make coin planchets are purchased on the open market using revenues from coin sales.

  9. Dan says:

    Mr Golino

    I think that your article is spot on. What I find amazing is that this topic has been discussed lightly on other blogs and while there are many of us that think the same, there are some that support what the mint has done and told the rest to stop whining about it with the attitude ” if you dont like it, dont buy it”.

    I have a hard time buying into the logic that the price increases have anything to do with the price of precious metals. The grid system that was in place for gold should have been revised for platinum, and a grid created for silver products. The annual report of the mint showed that its numismatic program was profitable with a 70 + million dollar profit so again I have a hard time understanding their logic. I am not aware of any section of the Mints charter where it states that they have to make “ X amount of margin “ on their numismatic offerings. At this point I think many business’s in America would love to turn that profit.

    As a collector I have always been concerned with the health of the hobby and I am afraid that moves like this, especially in times like this, can have nothing but a negative impact. I have already noticed that some collectors are planning to either not purchase or to pare back purchases of US Mint products as a result. I am also reevaluating my collecting and think that I will be directing more of my budget to older classic US issues. While some may embrace the thought of lower mintages, it will only make a difference if there is a market, i.e. a collector base left that wants it.. If the mint truly “ needs the revenue”, what happens if sales continue to drop??? Does that mean that they will be raising the prices again next year to compensate??? If the mint really needs higher margins, maybe they should start by looking within to either cut costs or increase productivity as corporate America has been forced to do, instead of the pocket of the collectors. ( I know a Department that went without a Director for over a year.)

    Well thanks for a great article and giving me a place to vent a little. I look forward to a follow up if the mint ever justifies its move to you.

  10. Louis Golino says:

    Thanks to Dan and everyone else for their insightful comments and kind words. A follow-up with some additional info. is already on the way.

  11. Mark Swiatek says:

    Isnt it obvious to everyone? They are running out of precious metals. That could be the only reason for raising the prices. That also explains the recent limited mintage coins.

  12. V.Kurt Bellman says:

    No, Mark, I think it just might be the “bean counters” at work. Somebody in management has probably asked, “What does it actually cost us to make, package and ship these things, with all fixed costs factored in, and with no other operations subsidizing it? Oh, and by the way, if a facility is making ONLY collector coins, their whole budget gets factored into the fixed costs.”

    NOW how much would you pay?

    A cable channel some years ago made a program called something like “Secrets of the U.S. Mint”. It went into really fine detail about the minting process of gold and platinum proof collector coins. While I watched it, my overwhelming thought was, “Wow, some other part of Mint operations is subsidizing THESE babies!” Maybe the Mint has thrown away the “old book” and decided that each program needs to FULLY support itself, without subsidy. If that’s what is happening, look for MORE increases.

  13. V.Kurt Bellman says:

    By the way, while Mint products do NOT deplete our gold at Fort Knox and Lower Manhattan, the American Silver Eagle program (all finishes, not just proof) did eliminate the Strategic Silver Reserve. It no longer exists. If you have an ASE in your file box dated 1986 through about 1998 or so, you have a chunk of the old SSR.

    • Louis Golino says:

      That is absolutely correct, Kurt. I almost mentioned it above. That’s why silver for American eagles has to be bought on the open market. But I think we should have held on to all that silver from the SSR rather than sell it off in eagles.

  14. beststockstobuy says:

    Well, this is not at all a good move where it may affect sales tremendously, restricting people to make numismatic gold and platinum purchases from the US Mint. In fact, only well-heeled buyers can make the most of it…

    • Dave in CT. says:

      beststocktobuy;
      I just wanted to add, if you can wait, most of these so-called numies should come down in price, as time goes by. Their are other avenues to purchase these, as in Ebay, etc. Also, if I may, say you do not want to pay those ridiculous, and sky high numismatic silver/gold prices, such as those ever desirable “HR’s. Just wait 2/3 months and those high relief’s suddenly do not command the $100 plus price, and often, you can purchase these particular coins, in the low $90′s, and I have seen some in the 80′s. Just have to have some patience. Now, if those (i am using HR’s as an example, as this is what I collect)HR’s have a stated mintage of 5000, then this probably will not happen. But I have found out most of these numies are over minted, and most will see a decent price decline, but in time. Usually I find that you have to have your list of online coin dealers handy, of where to look. This makes the process even quicker, when I think that coin value will not fall further. Plus, keep in mind, if one dealer over time has lowered their price on a certain coin, doesn’t guarantee that dealer will have the next coin at a discounted price, that is, months after it has been released. I have about 15 or so of these dealers stashed away in my bookmarks, where I look first, if after the waiting period, I still choose to pick up the coin. I am amazed at just how many collectors in our hobby, have not figured this out, and have to be the first one on the block to have a just released coin, and then go on places like the Mint News Blog, to brag about it, not all mind you, but many. That’s ok if you have the extra funds to do this, but think of how many extra numismatic coins you could add to your collection,over time, if you just played the game a little smarter. Hopes this helps out the guys like myself, though I am not broke, but also cannot get everything that is released, nor would want to. Most of today’s numismatic coins are worthless, and even over time, 95% of them, will not get you anywhere what you have bought them for. So you better make sure what you buy, is what you really enjoy, because all said and done, you will lose your shirt, and most want to at least break even when it’s time sell, if not a profit. Not going to happen with all of the country’s out there, turning out useless coins. You have to admit this, their are many great and unique looking coins, but their are many that are just junk, and these country’s play off the collectors interest, and take all that money to the bank. Everybody and their brother, is minting coins. Best to purchase what you really like, and will enjoy, and not think about the coin you just bought, making some money down the line.
      ps; why buy these coins that will not increase in value, etc, to just go and put them in the bank, where you can’t enjoy displaying them. And your paying that safe deposit box fee as well. Just something to think about. I display my coins under my TV stand, and when folks come over, it only takes 5 minutes to put them away, and out of sight. I do not expect everyone to agree with me on this, but at least keep this in mind. Thanks, and good luck in everyone’s coin collecting, enjoy, and display !
      from your old man-”DAVE in CT.”

      • Synoptic12 says:

        † We agree somewhat with the context of your reply. However, many forget one thing, the policy of the U.S. Mint, in that they reserve the right to discontinue at any time. This factor remains a point of concern, regardless of the associated costs. This hook is still dangling in the purchase price of any possible numismatic gem.

  15. Synoptic12 says:

    We’ve read this article in which you have penned Louis, after reading the other article, “The Coin Analyst: Latest Developments at the U.S. Mint”, in which you have written also, and elaborated upon.

    Both articles are a summation of the intentions of the U.S. Mint, which are still vague and unclear, even though the Mint alludes to several factors as to justify the price increase of metals.
    Some points the U.S. Mint refers to may be qualifying factors, such as the increased cost of production, or increased costs in general. This very well may be, but if the price of any metal declines significantly to a cause of concern, would this mean that the cost of such metals would continue to rise? For instance, if silver were, let’s say $10.00 an ounce on the open market, would the U.S. Mint continue to expand their price, as using the pretence that “production costs have increased”? Who would purchase one silver ounce, valued at $10.00 but as being sold by the U.S. Mint for $50.00? We have identified these factors nearly a year ago, and have provided our opinion in the future strategy in which the U.S. Mint would be heading. This very much appears to be materializing as we have made mention of. However, we are still at a loss to define exactly which path the U.S. Mint is travelling in. The situation remains blurred, as the collectors are somewhat, if not totally confused. More so, this approach is turning many away from the field of numismatics.

    The secondary market is beginning to feel the pressure, and losing momentum, by the new standards of the U.S. Mint, in which the U.S. Mint refers to in a supposedly justifible lighT (COSTS). This again, could be used to offset any concern.

    Many, many collectors, and interns in the field may begin to leave, and never look back. The people that remain, will be purchasing high priced products, valued at two to three times above market value. Only those with a shovel to move in unison with the U.S. Mint, will continue to buy. This may be a very small number of people whom wish to pursue the unknown. The sixty-four thousand dollar question, “Will there be a secondary market”, and “Would there be any profit, or numismatic value left”? The U.S. Mint seems to be gathering all unforseen oportunities, and is determined to capture all profit, leaving no leeway for other collectors to sustain any monetary profit.

    Thank you very much Louis for the fine articles you have written, and also addressing the concern of one of the U.S. Mint’s staff, via one of your comments. The fact of the matter is, “Why does not the U.S. Mint address any of the collector concerns, but alludes to all facets in which the consumer may have”?

  16. WWPMC - Newsroom: The World Financial Report – March 12, 2013 says:

    [...] Eagle Jan-Feb 2013 gold bullion coin sales soar. February 2013 American Eagle gold bullion coin sales rocketed an incredible 238% over last year, while silver bullion coin sales during the same month [...]

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