It has now been one week since the US Mint
unveiled their new pricing policy
for Gold and Platinum Numismatic products. Yesterday, collectors got a first taste of the new policy as prices for nearly all gold coins increased
, ironically coinciding with a sharp decrease in the market price of gold. So far, reactions to the new pricing policy have been resoundingly negative.
While I do believe the US Mint had the best of intentions when they decided to overhaul their pricing policy, their implementation leaves much to be desired. Below I will examine some of the most common observations from myself, Mint News Blog readers, and Coin Network
members.» High Premiums
The most common complaint about the new pricing policy is the high premiums for coins. I compiled some historical data, which confirms that premiums have been expanding. The table below shows the premiums for the Proof Gold Eagle 4 Coin Set over the past few years. Each date represents a new pricing point established by the release of a new coin or a pricing adjustment.
|Proof Gold Eagle 4 Coin Set Premiums || || |
| ||Price ||Spot Gold ||Gold Value ||Premium ||Percent |
|February 2, 2006 ||1,350.00 ||572.15 ||1,058.48 ||291.52 ||27.54% |
|May 22, 2006 ||1,575.00 ||652.50 ||1,207.13 ||367.88 ||30.48% |
|July 12, 2006 ||1,495.00 ||650.00 ||1,202.50 ||292.50 ||24.32% |
|February 5, 2007 ||1,449.95 ||649.40 ||1,201.39 ||248.56 ||20.69% |
|October 12, 2007 ||1,695.95 ||749.50 ||1,386.58 ||309.38 ||22.31% |
|March 5, 2008 ||2,199.95 ||974.50 ||1,802.83 ||397.13 ||22.03% |
|November 14, 2008 ||1,952.45 ||747.50 ||1,382.88 ||569.58 ||41.19% |
|New Pricing ||2,013.00 ||821.00 ||1,518.85 ||494.15 ||32.53% |
It could be argued that the premiums gold and platinum products have expanded worldwide due to the recent high demand. On the other hand, premiums for US Mint products under the old pricing policy were significantly lower as recently as a few weeks ago. At the end of December the price of gold rose to $880. At this price, the premium for the Proof Gold Eagle 4 Coin Set was less than 20%.
Even though the US Mint had adjusted prices to a 40% premium in November, because the old policy was less reactionary with adjustments, lower premiums were still possible. Under the new policy, prices are subject to adjustment each week, keeping premiums at permanently high levels.
Perhaps the most unjustifiable premiums are for the collectible uncirculated coins. These are the uncirculated coins bearing the "W" mintmark which the US Mint introduced in 2006. Currently, the 2008-W Uncirculated Gold Eagles remain on sale.
When the US Mint first introduced this product line, they described the pricing as "at the relative mid-point between the American Eagle Proof Coins and the American Eagle Bullion Coins." (See their own press release
.) Under the new pricing policy, the Uncirculated versions are priced a mere $6 or $7 below the Proof versions and far above the prices for bullion coins.
The chart below shows how the premiums for the one-ounce Uncirculated "W" Gold Eagle have expanded over time. Each date represents a pricing point established by the release of a new coin or a pricing adjustment.
|One-Ounce Uncirculated "W" Gold Eagle Premiums |
| ||Price ||Spot Gold ||Premium ||Percent |
|September 28, 2006 ||720.00 ||603.00 ||117.00 ||19.40% |
|April 27, 2007 ||749.95 ||677.50 ||72.45 ||10.69% |
|October 12, 2007 ||831.95 ||749.50 ||82.45 ||11.00% |
|February 1, 2008 ||1045.95 ||914.75 ||131.20 ||14.34% |
|April 1, 2008 ||1119.95 ||887.75 ||232.20 ||26.16% |
|November 14, 2008 ||974.95 ||747.50 ||227.45 ||30.43% |
|New Pricing ||1078.00 ||821.00 ||257.00 ||31.30% |
Mint News Blog reader Scott
These new price levels are too high. There's no legitimate reason an uncirculated one ounce gold eagle should cost almost $300 over spot. These prices are virtually the same or higher than when 2008 gold coins were first available. Nobody's going to buy from the mint at these prices, recent history has already proven that.» Fixed Pricing Tiers
The US Mint's pricing tables for the new pricing policy are structured in fixed price tiers. At every level of the chart, a $50 increase in the precious metals price yields a $50 increase in product prices. By structuring prices in this fashion, the premium expressed as a dollar amount remains constant, but varies widely as a percentage.
This can most easily be seen with an example. The chart below shows the premium for a one-ounce Proof Gold Buffalo coin expressed as a dollar amount and as a percentage at various gold prices.
One Ounce Proof Gold Buffalo Premiums
|Product Price ||Spot Gold ||Dollar Premium ||Percent Premium |
|810 ||500 ||310 ||62.00% |
|860 ||550 ||310 ||56.36% |
|910 ||600 ||310 ||51.67% |
|960 ||650 ||310 ||47.69% |
|1,010 ||700 ||310 ||44.29% |
|1,060 ||750 ||310 ||41.33% |
|1,110 ||800 ||310 ||38.75% |
|1,160 ||850 ||310 ||36.47% |
|1,210 ||900 ||310 ||34.44% |
|1,260 ||950 ||310 ||32.63% |
|1,310 ||1,000 ||310 ||31.00% |
|1,360 ||1,050 ||310 ||29.52% |
|1,410 ||1,100 ||310 ||28.18% |
|1,460 ||1,150 ||310 ||26.96% |
This pricing structure is not typical. As was seen in previous examples, the old pricing policy always seemed to set a specific percentage premium (albeit an expanding one). Does the US Mint really think people will pay a 62% premium for a one ounce gold coin?» Discontinued Products in Pricing Charts
The US Mint included numerous products on the pricing charts which are sold out and discontinued. This includes the fractional Gold Buffalo coin and fractional Platinum Eagle coins. So far, there has been no explanation for the inclusion of these coins. Some collectors have questioned whether the products might be making a comeback in 2009 or whether some 2008 products might unexpectedly return.
I don't have any information on why these products were included. I do know that the US Mint has been working on this new pricing policy for at least a few months. It may simply be the case that when they created the charts, they anticipated that the products might still be available when the policy went into effect. For example, the fractional 2008-W Uncirculated Gold Eagles are still available even though they have been discontinued for 2009.» Disappearing and Reappearing Products
Late last week, the one-tenth ounce 2008 Proof Gold Eagles seemed to have sold out. The coins were even added to the US Mint website's "No Longer Available" section, which has commonly been used as confirmation that a product is officially sold out rather than suspended. Later in the day, the coin reappeared for sale. What happened?
I think this was a consequence of the US Mint's new pricing policy. The one-tenth ounce Proof Gold Eagle was one of two products which experienced a price decrease
under the new policy. Prior to implementing the new policy, the product may have received sufficient orders to exhaust the US Mint's inventory, causing the Mint to remove the offering. As news of the new pricing policy spread, customers may have started canceling orders or returning products with the intention to re-purchase them when the new prices came into effect. Once the returns and cancellations started to pile up, the US Mint put the product back on sale. This scenario is speculation on my part, but the pieces fit.
The US Mint has a 30 day return policy and allows orders to be canceled for a brief period after they are placed. With prices potentially adjusting every week, many customers will use the cancellation and return window to take advantage of more favorable prices. Every time the price of precious metals drops, the US Mint can expect an influx of returns and order cancellations. Customers can expect a confusing situation of disappearing and reappearing products similar to the one described above.» Turning Coin Collectors into Precious Metals Speculators
While it may have always been a partial consideration, the US Mint has forced coin collectors to place even greater emphasis on precious metals prices when making their coin buying decisions. I do not think this is a good thing for collectors or the US Mint.
As one Coin Network
Now there is a lot more incentive for folks to wait out the market and wait for commodity prices to drop. Pricing your product on a weekly basis is an invitation for the consumer to not buy--- and especially when the pricing is volatile.
How many collectors will spend weeks waiting to see if precious metals prices change? If precious metals prices drop, should they buy more? If prices go up, have they missed the boat?
Product releases from the US Mint used to be somewhat exciting events. Remember when the First Spouse Gold Coins were introduced? Collector excitement was high and the US Mint's website was slowed to a crawl by the influx of traffic. Now, the joy of adding a newly released coin to your collection might be overshadowed by the uncertainty and speculation over the price of the coin next week.
While it was probably not the US Mint's intention, they have completely changed the dynamic of collecting gold and platinum coins with their new pricing policy. I sincerely hope someone at the US Mint is taking as much time to examine the situation as their customers are.
Labels: US Mint