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.
Earlier 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.
Louis 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.