The Coin Analyst: How the U.S. and World Mints Are Dealing with Increased Precious Metal Price Volatility
by Louis Golino for CoinWeek
Spot prices on the futures markets for precious metals have always been volatile, especially for silver.
But since last year’s roller coaster ride, in which gold and silver reached previous or new nominal highs then plunged dramatically for months, spot price volatility has reach new heights.
To be sure, circumstances were similar at the height of the 1980 metals mania, but back then the big jumps mostly took place over just a few days, and the decline that followed them took place at a more measured pace.
Today’s circumstances have put pressure on the U.S. and its foreign mint competitors to try to keep up with a constantly moving target.
Germany, which issues a series of 10 euro commemorative coins in proof and uncirculated finishes, decided to change the composition of the uncirculated coins to cupro-nickel metal while keeping the proof coins, which are priced higher, in silver.
Austria, which issues a series of 5 euro silver commemoratives, took the unusual step of melting tens of thousands of one issue, and since then has decided to offer two versions of the coin. One is a copper coin with a higher mintage, and the more limited mintage coin continues to be made in silver.
France, Austria, Canada, and Australia all issue a wide range of non-bullion commemorative coins that are widely collected. They did not have to make changes because their coins tend to be priced a levels well above their metal value.
Canada, Austria, China, and Australia also issue widely traded bullion coins, but those are mostly sold through bullion dealers at small markups over melt value.
France began issuing circulating silver bullion coins a couple of years ago, although they don’t actually circulate. I will be discussing them in a separate article.
The U.S. Mint, which is probably the largest coin seller in the world unless one considers all e-Bay sellers in the aggregate, has taken a different tack.
Its silver commemorative dollars are also priced sufficiently above metal values because of the $10 surcharge for the affected constituency or organization, and each coin has about 77% of an ounce of silver. As a result, so far prices have always been well above melt.
Pricing Grid System
But for other precious metal U.S. Mint products, pricing became a daunting issue last year that resulted in multiple sales suspensions and new price grids.
Gold and platinum collector coins have had a pricing grid in place for several years now. Once a week Mint officials review the average price for the previous week, as well as the London pm closing prices, and then decide whether or not prices should be increased or decreased.
For large coins, this usually means a $50 increase or decrease for gold, and a $100 increase or decrease for platinum, even though that amount does not correspond to the actual change in spot prices.
During the summer, a similar grid was developed for gold commemoratives when prices for the Medal of Honor and Army $5 gold coins began to get very close to their metal content. The coins were pulled from sale until a grid could be created for those coins.
Silver coins have been the biggest problem because they still have no grid, and when silver prices move substantially the Mint has no choice but to remove the coins, and re-price them after a notice is published in the Federal Register.
This is a deeply unsatisfactory system for all parties concerned. The Mint has to stop sales of coins for weeks at a time, which is also frustrating for collectors.
Moreover, the grid system for gold and platinum coins is simply unsuited to the volatility of today’s metal markets.
A case in point is the patently absurd situation that developed on Feb. 29. On the very day when gold and silver had their biggest drop since last fall, the Mint raised prices on gold and platinum products because of the increase in prices over the previous week.
That seems like a sure recipe for lower sales in the subsequent week and a lot of unhappy customers.
During the previous week, the Mint suspended sales of a number of silver products like the five-ounce America the Beautiful coins to re-price them because silver had increased by at least $5 an ounce since the price of the coins was last adjusted. But the drop on Feb. 29 meant the repricing might not be necessary.
This whole system simply does not work for collectors or for the Mint, and a more nimble approach is needed.
Need For A New System
The Mint should implement some kind of real-time, or at least daily, pricing of its precious metal products, as major coin retailers already do.
The current system, which uses different pricing systems for different products, is simply too complicated and surely inhibits sales of the Mint’s products. Greater transparency would likely spur more coin sales.
An easy to understand system based on real-time pricing like what bullion dealers use, or one that at least updates once a day, would be a major and welcome improvement over the current system.
Looking forward, spot metal prices are widely expected to be even more volatile than they have been in the past year, especially as large moves in gold become more normal. As gold prices approach $2,000 an ounce, an increase or decrease of 5% or more in a day is not unusual.
Why should Mint customers have to pay $50 more for a coin one week when the price of gold actually declined by almost $90 the day before, as happened at the end of February?
And why should silver coin buyers have to wait weeks while products are repriced?
It’s time for the Mint to develop a 21st century pricing mechanism, and that is putting aside other issues with the ordering system, such as how to handle high-volume periods and limited edition sets.
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.