Mint News Blog

News, Information, and Commentary on US Mint Products

Tuesday, January 13, 2009

Reactions to US Mint's New Pricing Policy

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 commented:
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 member said:
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.



At January 13, 2009 at 4:35 PM , Blogger astroguy said...

I agree with your analysis (the subjective conclusions part), and I hadn't actually thought of a lot of it. I still plan on purchasing the Saint-Gaudens when it's released on January 22, since, for the last 2 years, gold has risen steadily to a high around May. However, I will definitely be keeping an eye on the spot price of gold during my 30-day return window. I've also been watching gold this week and hope it stays below the $850 price point that it dropped to on Monday ... maybe even below an $800 price point. That'll be a nice "savings" on the Saint-Gaudens when it's released next week.

I will admit that I do do some speculation in terms of prices, but I never had done it for US Mint products. For example, I'm looking into buying two coins from the Royal Canadian Mint. However, I've been watching the USD-CAD exchange rate over the last week and have put off purchasing, waiting for a slightly more favorable exchange rate to bring the cost down. I think this is basically the same thing as what most of us will now be doing with gold and platinum from the US Mint.

I think it'll bring an added OCD-ness to the hobby that, I agree, isn't in the hobby's best interest. However, I'll repeat what I said before in a comment on your blog: At least we know. At least we don't have to wait 3 months for the Mint to drop prices and no longer sell 1/2 oz First Spouse coins for $650 when spot gold is at $800. I think the new system is at least some improvement, but I agree that the premiums are fairly silly.

At January 13, 2009 at 4:50 PM , Blogger Mint News Blog said...

Good point. I didn't really discuss the positives of the new policy.

Collectors have better transparency than ever before regarding pricing. And multi-month suspensions will be a thing of the past.

At January 13, 2009 at 5:36 PM , Anonymous Anonymous said...

michael, do you how the new pricing works. do i pay the price the coin is the day i ordered it, or the price the day it ships and they charge my credit card. i called the mint and asked but nobody can give me a answer. because sometimes they don't ship for a couple of weeks.

At January 13, 2009 at 5:36 PM , Anonymous Anonymous said...

Much of the premium is completely unjustifiable.

Every gold coin that I've bought from the Mint has been shipped by FedEx, yet they have never charged me for the Express shipping option.

Add on to that the premium packaging that they have begun to use. I don't need a premium wood or wood-like box for every coin I buy, but all of my First Spouse and Buffalo coins have come in the premium boxes. Standard commemorative coins come in a plastic capsule and much cheaper box.

On top of all the marketing and production costs, they admit charging a 15% margin for their profit, which also seems steep.

Seems like there are some expenses that the Mint could cut back on to make the coins more affordable, and open to a broader audience.

At January 13, 2009 at 5:41 PM , Blogger Mint News Blog said...

Regarding how the pricing works- I haven't seen it explicitly stated anywhere, but I have been under the assumption that you pay the price of the coin which was in effect the day you ordered it.

I think there would be legal or credit card issues if they try to charge you a higher price than the one you agreed to pay when you placed your order.

At January 13, 2009 at 5:53 PM , Anonymous Anonymous said...

I would suggest a more realistic pricing schedule unless the mint wants to kill their collector coin market. One ounce proofs shouldn't be more than $200 over spot, uncs @ 150 over, half ounce proofs @ 100 over, uncs @ 75 over, etc. These premiums would be high enough for the mint to make a profit & also not affect bullion sales. The vast majority of 2008 coins would still be sitting on government shelves if prices hadn't been lowered to more realistic levels back in November.

At January 13, 2009 at 6:03 PM , Anonymous Anonymous said...

Just a side comment about the mint dropping fractional platinum and fractional buffalo coins. I blame this directly on the "mandated by law" requirement to strike first spouse coins, most of which are ugly. I expect the majority of these issues to be just as valuable and collectable(ha,ha)as the american arts series sold by the post office years ago.

At January 15, 2009 at 8:29 AM , Blogger FiremanDev said...

I agree with Scott. The Mint should charge no more than $100-$200 over spot for their 1-oz gold bullion products. As it stands now, their premiums are completely unrealistic.

At January 16, 2009 at 8:09 PM , Anonymous Anonymous said...

Let's stop kidding ourselves. The government doesn't want you in gold or silver. They want you in their worthless dollars. Why is it in every country in the world but here, you can exchange any currency into another for a reasonable rate? You try to do that in the States, you're better off at the shylock's.

At January 17, 2009 at 8:46 AM , Blogger GoOgLyMoOgLy said...

The government is making everything so high so people, like us, will complain, cry, and moan about the high prices and try to deter us from buying. With the weekly price adjustments, the plunge protection team is already manipulating the PM prices. Now, the US Mint has the authority to manipulate the price to try and 'weed out' anyone not willing to pay for man's 'real' money for thousands of years. I say, BUY IT, no matter what! 20 years from now, perhaps the very coins people complain about will be worth a fortune. Let's look at the bigger picture, folks.

At January 18, 2009 at 11:38 AM , Anonymous Anonymous said...

I've been purchasing from the U.S. mint for a number of years. My current feeling is that all gold and platinum products are over priced. However, if you're careful at times you can reduce the premiums by waiting. Examples of this ocurred this past year with the 10th anniversay platinum eagle set as it did with certain First spouse coins, and recently the Double Prosperity set and Buffalo Celebration coin prior to the new Mint pricing policy. The question we all need to ask ourselves, are these prices justified and are we not better served purchasing bullion products from coin dealers without the W mint mark

At January 19, 2009 at 6:02 PM , Anonymous Anonymous said...

this a another gub-mint scam. It's effects are three-fold: (1) it discourages the purchasing of physical gold by raising prices; (2) the gub-mint profiteers off those who realize the dollar is toast and are getting out; (3) it gives an alibi to the gub-mint who wants to hide the fact that people are paying huge premiums over comex to get their hands on physical gold (the gub-mint can now simply say "oh, well, coin price premiums are simply high because of fabrication costs", which is a lie - they are high because the comex is a scam and people see it and are bidding up physical metal they can get their hands on). The gub-mint is scared and does not want joe the plumber to realize that smart money is willing to pay big premiums to get gold coins so they attempt to hide it by saying that "oh, there's a big premium because coins have high fabricating costs." lies, lies, lies...

At January 20, 2009 at 7:45 AM , Anonymous Anonymous said...

As an outside possibility pehaps the Mint's intention is to discourage public acquistion of gold and platinum. Outside, way outside.

At January 20, 2009 at 8:08 PM , Anonymous Anonymous said...

Am I being conspitorial if I think it is no coinsidence premiums for coins are increasing given the shortages of many products globally?

Given CFTC's preferencial treatment of JP Morgans short silver position that they took on from bear stearn (138M ozs) and their huge gold derivative positions and role as bullion bank leasing and shorting central bank gold as carry trade etc it is not surprising to see further actions that all help the short hands and keep metal away from the small investors.

Just as crazy was the commodity index rebalancing where gold was cut from 10% to 8% despite having increased in price for the eigth year in a row simply because less quantity was mined and reached the markets. So index funds were all forced to sell portion of their holdings resulting in the price weakness we saw a couple of weeks ago. And if gold mining continues it's decline, funds will be forced to sell more. And yet the coinshops are short on stock and increasing premiums.


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