Coin Dealer Ethics Follow-Up - Melting Coins

The Coin Dealer Ethics scenario last week was about dealers who are melting down coins for profit. We considered the case of SilverTowne, which has melted down thousands of recently-minted First Spouse and commemorative gold coins. We looked at the fact that when precious metal prices skyrocket as they are right now, all kinds of coins, both old and new, end up in the melting pot. We asked whether it was ethical to melt coins, or whether coin collectors should be preserving history for future generations rather than melting it for our own selfish profit. (Check out the original scenario about coin melting.)

This topic didn't bring the sorts of responses from readers that I expected. Although most people who commented expressed a sense of negativity about the practice of melting down coins for personal profit, I didn't see the outrage I expected. I personally find it greedy, selfish, and loathsome that people would melt down coins to enrich themselves, rather than endeavor to preserve the coins for future generations. But in my efforts to present an objective view of the practice for the sake of discussion, I didn't really make certain things about the practice clear to those who are unfamiliar with the reasons why it happens.

For example, the very first reader comment asks:

I think melting a coin that would yield a better return as is would be foolish on the melter's part, yes? I don’t see the advantage of melting a coin containing 1oz. of gold to create a 1oz. bar? -- Yankee237

The reason that it is profitable for coin dealers to melt down coins is that dealers buy the coins below bullion value. Most dealers pay between 90% to 95% of bullion value when buying gold or platinum, but charge 105% to 110% when selling these metals. Silver, because of its lower value, typically has a fixed premium instead, since taking percentages doesn't equal very much money. Dealers are currently paying around 12 to 14 times face value for 90% U.S. silver coins. At the current price of approximately $20 an ounce, $1 face value of most U.S. circulating silver has $15.47 worth of silver bullion. The mass-melting of coinage occurs when dealers are buying far more than they can sell (as coins.) If they melt the coins down, they can sell the pure bullion far more easily on the open worldwide bullion market than they can sell the coins on the far more narrow numismatic market.

Some people felt that there should be two standards for what it is permissible to melt:

The St. Gaudens and other silver and gold coins from the 19th century are irreplaceable and should be treated as National Treasures and protected against melting by federal law. These coins actually circulated, meaning every one of them has a story and is an integral part of our American History, from the days following the Revolutionary War to the Great Depression, and great care should be taken to save them...On the other hand, First Spouse coins and the like are bullion coins, never meant to circulate, and are the same as bullion bars, their value based on the price of gold, not any of the criteria that a real coin's value is based on. -- Robert G.

Save the old coins and bullion for sure. The First Spouse commemorative pieces, I don’t care. It might make them rarer and actually worth collecting. Save the classic pieces though. -- Paul

There were some theories as to why the First Spouse coins in particular were being melted:

Isn’t it because dealers massively overbought the First Spouse coins when they came out hoping to make money with them? Now that these coins don’t sell they can either either melt them and recuperate the money to buy other stuff they can profit from, or they can just sit on a bunch of gold which doesn’t sell and keep a lot of their money tied up. It’s a business they are running so my thought is they can’t afford to have that much money tied up. -- Alan

My guess is these clowns (that’s being kind) purchase a large number of certain coins that they believe will be very desirable at some future point in time. They pick through for the [very high grade] PRF69’s and PRF70’s, and they melt the rest of them (which they either break even or make a small profit depending on the quote the day they sell), and put the keepers in the vault and wait, say, 5 or 10 years. Now that the coins are scarce, the ROI [return on investment] will probably be in the double digits if not triple digits. -- Patrick G.

Some readers feel there is nothing wrong with melting any kinds of coins dealers want to for the profit:

I am a capitalist, a lover of “free” markets. Buy low, sell high works for me. I am a coin collector. I prefer to manage my collection myself. When the government becomes involved I will find a new hobby. -- CarlMcKay

If you own it, it’s yours to do with as you please. Like it or not, that’s the way it is in this capitalist democracy! -- Bigjohn

The bottom line on all of this?

I guess all this foolishness will make what coins I hold more valuable over the long haul. -- Joe Gallagher

There were a lot of other very insightful comments made, and if this subject interests you, I recommend taking a few minutes to read them all. Just watch out for our #1 fan (and class clown) coinycom:

Ah the heck with it. Everybody meet me at the Statue of Liberty. It’s time to melt the old lady. All she does is take up space in the harbor. We’ll make a ton of money. Who cares about history????!!!!!!! France doesn’t like us anyway. That’s one way to get even. Laugh & load. Fill your pockets! -- coinycom

I am always looking for ideas and scenarios for the Coin Dealer Ethics discussions. Have you seen something unethical, or been the victim of some kind of coin-related fraud or scam? Do you have a good theoretical situation for us all to debate? Send it to me at coins.guide@about.com.

Some Previous Coin Dealer Ethics Topics:

• Coin Dealer Ethics - Name Your Price?



• Coin Dealer Ethics - Shill Bidding for Safety



• Coin Dealer Ethics - Coins Lost in the Mail



• Coin Dealer Ethics - Elderly Lady and Her Jar of Coins