Thoughts on US Mint Product Discontinuations
As a follow up to yesterday's news of the US Mint's Product Eliminations, I wanted to provide some thoughts and opinions on what it means and what it might change. In the first section I have included the official statements from the US Mint, but in my opinion there is more to the story. Specifically, regarding the discontinuation of the fractional proof offerings and uncirculated "W" offerings for Platinum Eagles, Gold Eagles, and Gold Buffaloes.
Why were the products eliminated?
The US Mint's press release mentions that the product eliminations were spurred by collector concerns that the US Mint was offering too many products. The Mint also states their intention to focus resources on core products. Finally, they cite number of units sold as a determining factor for which products should be retained.
CoinWorld has a quote from the US Mint Deputy Director Andrew Brunhart, "We're hearing the numismatic community loud and clear. We're trying to react not only to collector comments and concerns, but to the broadest base of Americans."
These reasons are all valid and true, but I think there were some larger issues under the surface. I think that managing an array of bullion type offerings across gold, silver, and platinum metals became unwieldy and possibly unprofitable for the US Mint.
The Mint sold the offerings at fixed prices while the values of the underlying precious metals constantly fluctuated. The last few years have seen extreme volatility in precious metals prices. While precious metals climbed in 2006 and 2007, constant suspensions and repricings were necessary. The requirement for the US Mint to publish new prices in the Federal Register made each suspension/repricing a lengthy process.
In 2008, precious metals prices dropped substantially. Since product prices were fixed while precious metals prices were high, the coins ended up with extremely high premiums. The only prices adjusted downward were for Platinum Eagle coins. But even after nearly 50% reductions, premiums as compared to the market value of the metal remained extremely high. These enormous premiums are undoubedtly a drag on sales. In other words, low sales weren't necessarily an indication that the products were unpopular, it had more to do with the fact that premiums were much too high.
Secondly, even with the high premiums it is entirely possible that the US Mint is taking losses on some of the products. This seems likely for the Platinum Eagle products in particular. The Mint may have acquired the platinum used to make the coins when prices were much higher. Platinum was trading at $1,921 per ounce when the coins initially went on sale compared to today's price of $814 per ounce. The Mint must have experienced some losses from coins produced while prices were high and sold while prices were low.
The Mint is also presumably still holding onto approximately 12,000 unsold 2007 10th Anniversary Platinum Eagle Sets. These were produced at the end of 2007, meaning that the platinum was definitely acquired at higher price levels. These sets have been suspended since August and have not made a reappearance.
In addition to the precious metals price risk, there are also the fixed costs of each product offering to consider. With the low sales levels experienced this year, these fixed costs are spread across fewer products, again possibly making the offerings unprofitable.
How will this impact 2009?
Shopping at the US Mint will be a much different experience in 2009. In recent years, the vast number of bullion related products overshadowed many of the US Mint's traditional offerings. These expensive offerings also took up a big portion of coin collector's budgets, leaving less money for other coins. With many of the fractional proof and "W" uncirculated coins gone, collectors might shift their focus to other series.
Possible beneficiaries include the First Spouse Gold Coin series. After strong popularity in early 2007, collector interest waned. In previous posts I have written that one contributing factor may have been the vast array of other bullion related products the Mint was producing. With less competition, interest might flow back into the series.
Commemorative coin issues may also show renewed interest. This year's Bald Eagle Commemorative coins have posted strong sales, but failed to reach sell out levels despite an excellent design and popular subject matter. Again, part of the reason may have been collector focus and money which shifted to the bullion related offerings. Next year's commemorative line up will include a 2009 Lincoln Commemorative and 2009 Louis Braille Commemorative. Designs and details have not yet been released, but I think the Lincoln Commemorative will be a sell out.
Lastly, I think the biggest beneficiary of the reduced product line up will be the hotly anticipated 2009 Ultra High Relief Gold Double Eagle. The product eliminations basically clear the slate for this coin to make a big splash when it is released.
What does the future hold for the discontinued coins?
The future may be bright for some of the now discontinued offerings. Specifically, I think perception may change for the Uncirculated coin offerings with the "W" mint marks. Instead of being viewed as follow-ons to the bullion coins, they may being to be viewed as collector coins, as they were intended. In almost all cases, the mintages are a fraction of the bullion coin mintages. In the case of the American Buffalo Gold Coins, the 2008 fractional coins will be unique for the series.
With low mintages and dispersed supply, the some of the discontinued coins may be poised for higher prices if perception shifts and demand materializes. This will be an interesting situation to watch, particularly as the 2008 issues continue to sell out.
Labels: US Mint