On September 2 the U.S. Mint once again suspended sales of some gold and silver coins because of rising metal prices. This is the third recent time this has happened for gold products and the fourth for silver products (http://mintnewsblog.com/2011/09/gold-and-silver-numismatic-products-suspended-yet-again/).
Labor day weekend is a traditional sale period for most businesses, and presumably many coin collectors had planned to purchase coins such as the Lucy Hayes first spouse $10 gold coin that was released the day before the long weekend.
All gold coins except the $5 commemoratives, which had recently been repriced at new levels, were pulled from sale. Most silver products remained for sale except for the 2010 silver proof sets and silver quarter proof sets, and the 2011 silver sets were removed from the bulk sales program for eligible coin dealers.
This action may have been the proverbial straw that broke the camel’s back for Mint buyers. Many buyers were annoyed by the Mint’s actions, particularly since this has happened so many times in such a short time fame. Most people understand that rising metal prices mean coins need to be repriced. In addition, it is true that the Mint has always reserved the right to suspend sales before Wednesday, when gold coins are normally repriced, in the event metal prices are so volatile that the melt value of coins begins to approach the retail price for which they are being sold.
But surely the largest coin dealer in the world can come up with a better system than this. Business thrives on predictability, and buyers had become accustomed to the Wednesday repricing that follows a complex grid based primarily on the average price of gold during the preceding week. It is just not clear how much metal prices have to increase before sales are suspended in advance of the normal weekly repricing, and this uncertainty is harming the Mint’s sales.
Moreover, when there is a sharp drop in prices, as happened a couple of weeks ago, the Mint did not suspend sales to lower prices.
Mint officials should recognize that, as I wrote recently (http://news.coinupdate.com/golds-rally-is-far-from-over/), the current bull market in gold is resulting in an increase in the degree of volatility of prices. Moves of $50-100 a day are becoming the norm and are likely to continue to be as prices rise further. In fact, the gold VIX, which is a measure of gold investors’ perceptions of the volatility of the gold market, has risen greatly in recent weeks, as gold as hit one new nominal high after another. So a more flexible system urgently needs to be implemented.
I know that depending on the product and the metal there are different requirements. For example, price changes for silver coins and sets and gold commemoratives are supposed to be announced in the Federal Register, which means a delay so that the official notice can be prepared and published. Other gold and platinum coins are normally repriced one a week using the grid.
But whether the action can be done on its own authority, or in consultation with congressional officials as necessary, it is high time the Mint moves towards something similar to the real-time pricing system used by bullion dealers. This would be the best and fairest system for buyer and seller alike.
Would it not be possible to determine some sort of defined premium level for different coins that covers production costs, other overhead, surcharges, profit margin, etc., and then adjust prices as metal values increase or decrease day-to-day? This way collectors won’t have to constantly deal with sales suspensions and weekly repricing, and the Mint will not lose millions of dollars of business during the periods when coins are not available for sale.
I welcome any thoughts that readers may have in this area. I know from my own experience that it can be frustrating to deal with the current system since I was planning on buying a coin on September 2 just as sales were suspended. It is, of course, not exactly the end of the world to have to wait until the following Wednesday, but by that time I will most likely have convinced myself that prices will come down later, and I would be better off waiting for a price break some time down the road. I may even talk myself out of buying because my budget is as strained as that of other collectors.
I accept that metal prices change quickly, and the Mint should not be forced to break even or lose money. But there has to be a better way, and the Mint has the resources to create something that would work better. It would also behoove Mint officials to finally implement the long-awaited improvements to its web ordering system in advance of the much-anticipated October release of the 25th anniversary silver eagle set. A major web site crash on that day would really upset a lot of buyers, as would any incorrectly canceled orders.
I am currently researching how some other world mints deal with volatile metal prices and will be reporting in the future on the practices followed by officials in those countries.
Finally, I also think the Mint needs to re-examine the premiums it charges on its collectible precious metal products. Some coins are priced quite competitively but others carry premiums over melt value that run rather high at times.
As coins like the first spouse issues become ever more expensive because of rising gold prices, it would be helpful if the Mint could find a way to bring the cost down to a more reasonable level. For example, perhaps the fancy boxes could be replaced with the ones used for gold eagles and commemoratives, or buyers could be given the option of purchasing the coin in a capsule, as Coin World editor Beth Deisher suggested at a congressional hearing earlier this year.
Louis Golino is a coin collector and numismatic writer. His articles have been published in Coin World, Numismatic News, and other publications. He also writes a regular column called “The Coin Analyst” for www.CoinWeek.com about U.S. and world coins and precious metals and has written widely about international politics for newspapers and web sites.
If you study the canadian mint. It seems that they charge higher premiums over melt value on all issues with far fewer strikes.
Louis
We all have our issues with the mint lately but as far as this last suspension goes, it might be unfair to critize them for it. I think that with the current volativity in the world markets and gold especially, the mint probably did not want to go into a three day weekend since the bank stocks were slammed by the U.S. government after the asian and european markets were closed on Friday. With Monday being a U.S. holiday, the mint may have decided it was just to risky to have gold trading for Monday and Tuesday AM on the foreign markets before they could adjust just in case of a significant increase. As much as it would be nice to have the prices directly tied into the world markets, it could work against collectors also. I myself have awoken at 5am only to find that gold was going crazy in europe and asia and was able to place an order at that time. Even though the mint suspended sales those mornings, they still filled my orders on several occaisions. I think these are just extroadinary times and eventually ( god only knows when ) some stability will return to the world. However I do wish that after suspending sales, that they would reprice at least daily whenever possible.
Kelly,
Thanks for your feedback. I hope this does not sound harsh, but I don’t see how you can say in one breath that the suspensions are justified because they could have put the Mint at a disadvantage, and then say in the next breath that you were able to take advantage of the current system by getting an order in before prices were increased later the same day. Only a real-time system would be fair to buyer and seller alike, which is why major bullion dealers use that kind of system. To me, the real questions are can the Mint implement such a system with the resources and authority it has, and how long would it take?
Louis,
A hardy amen!!!!!!
Our government blows trillions of dollars on stimulus for banks and people who don’t lift a finger to earn their entitlements. They have spent trillions on weapons and sophisticated spying organizations (NSA, CIA, etc.). Yet they can’t contrive a simple method (like APMEX, etc.) to sell their numismatic products. I think it should be obvious that the Mint, USPS, and other like agencies are really secondary to the government because they do little or nothing to get politicians re-elected. It’s called boom-a-rang politics – the expenditures only go where money will come back in to the sweaty hands of slick, political lifers. Think about it, how many political donations come from or through the Mint? How many political donations come in because of the Post Office? That’s why their both second rate…because the politician’s treat them as second rate.
-joe
One other thought:
The gold FS program has long since been losing its fizzle, and pulling the Hayes coin from the shelves for repricing the day after it was launched is the height of stupidity! It only solidifies in my mind that those in the government (and especially at the Mint) have no clue how to run a business. In fact, they are only still in business because they are taxpayer funded. Anyone, AND I MEAN ANYONE, in a real business pulling these shenanigans would have been called on the carpet, chewed out, and promptly walked to the door (for good). If I wasn’t a collector, the incompetence of those running the Mint would be laughable (but the same thing could be said about our Legislative and Executive branches of government as an American).
Joe,
The Mint does not receive any taxpayer funding. It is a public enterprise fund that is 100% funded by coin sales. Even circulating coins are made with money from coin sales. Also, the USPS has not received any taxpayer funding for 30 years. I also think the post office does a darn good job, but I know in some areas people have lots of problems.
One foreign mint I know changes gold prices every 24 hours. I think this would be better for the US mint than real time updates and here’s why. Imagine its opening day for a “hot” gold coin. At 12 o’clock the price of gold is down $50 and the mint’s web site is moving slow or crashes. By the time you actually place your order the price of gold is back up $50 or more dollars, now that would really make customers mad. While a lot of bullion dealers have floating prices that get “locked in” for a few minutes at “check out” I’ve never experience a crash like the mint is known for on the opening day of “hot” item. The same servers you use to place your order would be the same servers retrieving the changing prices. My first two ATB purchases took over 30 minutes to complete and with today’s prices a lot can happen in 30 minutes.
Louis,
Regarding the US Mint, since they receive 100% of their funds without any taxpayer money then they are hamstrung by the congress and the president. Elected officials get to determine what the Mint produces. It reminds me of the new healthcare law…congress and committees and czars put forth by the idiots running the country get to determine what level of healthcare we will receive. However, it is up to the poor doctors and hospitals to make a profit after being hamstrung by bureaucrats. So look to the post office and mint for what we can expect in healthcare (if we’re lucky).
As a side note, I have been happy with many of the coins produced by the Mint…no doubt they do a much better job than the USPS. The USPS is an outdated relic that needs to be outsourced to the private sector (FEDEX or UPS). Very seldom does the USPS deliver packages I ship on time (even if I pay a special rate to get it there by a certain day). Their prices are high, and I have yet to receive a single package from USPS that hasn’t been crunched in some way. I have to warn all shippers to package well. That and the fact that our regular postman is an older gentleman with a bad attitude. Our substitute postmen are much nicer. Perhaps it’s because the older gentleman is near retirement and as a union member doesn’t really care.
JMO
I can’t say much other than to give Louis a hearty amen. Frankly the best thing to do is just have their website run like, say, APMEX – have a premium set at X percent and then have prices change minute to minute along with the price of gold.
This also needs to be done with silver as well, to be honest. I do understand why they’re having to do these product suspensions, but the frequency of them is becoming problematic.
Louis,
Another timely essay that strikes right to the heart of the matter. I thoroughly enjoyed the read!!
I have previously worked within a DoD / Working Capital Environment, so I can relate to some of the behind-the-scenes, self-sufficient struggles the Mint sees on a daily basis, but especially in batch-run manufacturing scenarios.
Given today’s technology, and the fact that certain “bench mark” systems already are in place, there really is no good reason why the Mint can not incorporate the real time product pricing into their e-commerce site. Well, other than the fact that their e-commerce site is trapped in the ’80’s, and in desparate need of an upgrade. Maybe they will address the requirement within their 2012-2013 rebuild.
With the creation of their Product Pricing Grids, the Mint already has the sliding scale where the material costs, productions costs and margin/profit percentages are defined at a baseline; in this instance, gold at $1,100 spot representing 65-75% of the product costs, various manufacturing costs at 10-20%, and margin/profit at 15%. Adding the real-time PM values would simplify what the Mint currently does manually, and would more accurately capture the actual costs of the first in – first out PM consumptions for the respective products, as well as the requisite material supply orders.
On the down-side, the next order of business following any automation would be for the Mint to re-address the pricing baselines and cost breakdown structures used within the current grid. For example, we probably will not see $1,100 spot gold at any time in the next 2-4 years. Sorry folks; it a reality. Since the current grid undervalues the spot price of gold at the established baseline, the Mint would appear to suffer losses within their manufacturing costs and profit margins at every level. I fully expect to see a revised Numismatic Pricing Grid, sometime in the next 6-9 months, where the baseline is $1,500 gold and the percentages are revised to reflect current operating conditions.
Thanks to everyone for the comments and positive feedback. I think today’s price changes are a good example of why the current system is inadequate. It clearly makes sense to wait until next week to see if the average comes down enough to drop a least one tier. $1100 is a lot for a half ounce collectible, as is $2160 for an ounce with current spot prices. Perhaps a once a day update would work best, but once a week with this volatility in metals seems odd to me. As for waiting for the world to slow down to normal, good luck with that!
Joe, I have heard of horror stories like you have experienced, but honestly in my whole life I have always had excellent service from the USPS except for one brief period years ago when I made a complaint and then everything went back to the previous level of excellence.
BB: Thanks for your comment. That is what I have found as well. I will be covering the Canadian Mint in a future column on world mints.
Question for those who are against real-time pricing, or once a day pricing: Are you willing to pay a $200 premium over melt for a 1/2 ounce coin, or about a $350 premium over melt for a one ounce coin?
By changing to a real-time pricing system it would have the effect of turning all of the mint’s numismatic products into nothing more than bullion. Admittedly, even numismatic prices are influenced by bullion prices, but to directly link the two would be to admit that there is no inherent value in the product beyond the bullion.