U.S. Mint Price Gouging
Although the U.S. Mint has been listening and communicating better this past couple of years, I think they're getting way too greedy in their product mark-ups. Take, for example, the Jackson First Spouse half-ounce gold coin: the Mint is selling the Proof version for $619.95. (The Uncirculated version is $20 less.) On August 28, 2008, the day the Jackson First Spouse coin went on sale, NY gold closed at $833.70 per ounce. This makes the NY spot price of a half-ounce of gold $416.85 on that day. The Mint's mark-up on the Jackson First Spouse coin is more than fifty percent over bullion value! This is a $203.10 profit on a $619.95 coin! This is absurd!
Of course, part of the problem for the Mint is the way it must do its pricing. It uses a system where it must fix the pricing for the coins ahead of time, hoping to account for upward bullion market fluctuations that might occur during the time frame the coin is on sale. In other words, the Mint sets a "worst case scenario" price and that's what we're stuck with. I don't know what they need to do to bring their ecommerce systems into the 21st century, maybe congress has to pass a bill or something, but the Mint really needs to change its pricing model so that prices fluctuate based on the actual bullion market.
Here's what I think the Mint should do for the Ultra-High Relief (UHR) Saint-Gaudens coin coming up: the Mint should set a base profit margin that covers their expenses and makes the bean counters happy, say $50 per coin, and then the selling price of the 2008 UHR Saint would be the actual spot price of gold at that time of purchase, plus the fixed mark-up. Another alternative would be to set a base price, using the actual amount the Mint paid for the bullion plus the standard mark-up, and as long as gold was the same as, or below this amount, the price stayed the same. But if gold goes above the base price, only the difference in spot price would be added. This method protects the Mint from potentially falling bullion values (since it must buy the bullion several weeks or more in advance of selling) and it protects the customer from being gouged by an antiquated ecommerce model.
Ed Moy has made a lot of noise about how he wanted the UHR Saint to kick off a renaissance of sorts for U.S. coin designs, and how he wants to do this nice thing for the collectors who so cherish the Mint's output. Hopefully Moy will follow through with his goal of doing a nice thing for collectors by pricing the coin fairly and affordably, hopefully well under $1,000 each, since many people who really cannot afford to buy one will stretch to do so anyway for this once-in-a-lifetime offering. A $50 mark-up over bullion price would be wonderful!
Comments
I like your idea, Susan: it gives the Mint a guaranteed profit on the sale, and gives the customer a sense that they are getting a premium product at a reasonable price. It was interesting that the Mint shut down orders and re-priced the coins upward as the bullion price increased, but is acting sluggish after the correction. It is possible they are trying to recoup their costs of purchasing gold when it was up, but I would think they would have standing contracts with the producers to keep the flow of precious metals steady no matter what the price.
This year we have seen many cases of extremely high premiums above precious metals value. People are clearly starting to vote with their wallets. Sales are tracking far below prior years for many of the Mint’s over priced gold and platinum coin offerings.
Maybe this loss of sales will help the Mint finally get the message and update their pricing practices.
The problem is the return policy.
If I buy 1 oz of gold for $50 above spot + shipping (say $14) and have 30 days in which I can return the product I have now bought myself a bet on gold such that:
1. If the price of gold in 30 days goes down by more than my $14 shipping, I return the gold and buy again. Not losing more than the $14 shipping
2. Price of gold goes up, I sell pocket the extra and start again.
The answer is to use the commodities futures market. The mint could buy the physcial gold and immediately “sell” the same amount on the futures exchange. Then after setting their price of spot plus a profit, they would sell to the public and each hour or day depending on volume “buy” the quanity of gold actually sold on the futures market. This would give the price protection they need PLUS allow for a flucuating spot price.
Susan, you’re absolutely right! The Mint moved at flash speed to stop and then later upward adjust coin prices when bullion was on the rise. Minimally, and regardless to the hard obstacles they face — like Howard’s point about their return policy, the Mint should implement policy and other changes to be just as diligent when bullion prices decline.
The Mint does not lose a cent even if it price a one ounce gold coin for $400. The mint has had the gold in inventory for decades when gold was much cheaper.
The 2009 high relief gold coin may be a beautiful coin. The cartoon like reverse must go and revert to the beautiful St. Gaudens reverse design of the eagle flying across the sun as the coin had from 1907-1933. The current reverse with the eaglests is cartoon like and should be eliminated.
What I also strongly recommend is that the Mint monetize with a $500 value the 2009 one ounce high releif gold coin . Then, the coin has a base price that protects the purchaser of the coin. At least the coin could never have a value of less than $500. $20 value is absurd given the price of gold and the price that the Mint will charge for the coin.
Your darn straight The Mint is price gouging! I gave my sister $20 to buy me some coins while she was visiting near there recently. She does’nt know much about coin collecting but I figured she’d find a little something right for the price. She ended up bringing me back a Mint bag of 100 Ocean in View Nickels, all D m/m. $20 for $5 worth of nickels, I could’nt beleive it. It’s not her fault, she did’nt know any better. The Mint, as far as I’m concerned, ripped me off. I’d expect to be charged more than $5 for the bag of course, but certainly not 3x’s more. If you think I’m wrong in this please let me know, and why. I love your articles and most definitely trust your opinion. Thank you so much for your time.
The argument that the mint should price the coins based on what they paid for the bullion will not work. If they end up selling the coins at less than current bullion value their order system will be swamped by precious metal dealers who will buy the coins to melt or resell at a much higher price on the resale market. It will create a system much like concert and sports tickets where savvy insiders buy up all the inventory as soon as it goes on sale and the consumer is either left out or forced to buy from scalpers. The mint’s price should be based on a premium over the bullion price at the time of sale, and they may need to revamp their return policy to further discourage speculation.
No one is speculating on Bullion coins from the mint. There is no margin. Someone needs to takes a hit in the pocket book to get the prices down where they need to be. Spouse, Buffalo and Eagles all have the same issue. Way overpriced…but the mint keep selling. So, why would they want to drop pricing?
Well, the high relief saints are not being sold as bullion coins. Why should we be bothered that they are priced well above their bullion value? Perhaps they should make silver or bronze versions for those who cannot afford them in gold.
What worries me is that they will be produced in inadequate quantities and will sell out before I can get an order in.
I would also like to point out that calling the Jackson dollar a $200 profit based on the $200 markup over bullion value is unfair. This assumed that the design, production, packaging, and marketing costs for the coin are zero, which is clearly not the case.
If anyone is interested, I did a calculation of the premiums the US Mint charges when the Gold Buffalo was released compared to recent price changes in the gold market. You can find that comparison on my blog at http://coinsblog.blogspot.com/2008/09/my-week-in-review.html
Hi Sue! Told you i would find a way. I’m back!! gdnp took most of the words right out of my mouth. One things for sure, there wont be any coins going into the melting pot any time soon, not at these prices. But i do think these new gold/platinum American Eagle coins are waaay over priced. Regardless of mint costs, it wasn’t like this before the steep climb in PM prices. The way things are in the economy. There will be less buyers wherever the price ends up.
If the mint wants to pull off the saint UHR. Their going to have to come up with a better system, than what their useing now.
Wheres the Yankee?
Chow!
coiny
testing testing, 1 2 3
Hmmmm…
One things for sure. Whatever the Mint prices a coin at, it won’t sell for any less after leaving the Mint, right? But here’s a couple more points to ponder:
1) Maybe the dealers have brought this on, in whole or in part, because of their wanting bigger returns after they buy up the coins to resell at higher prices than the released Mint price?
2) Maybe the Mint is trying to defuse the melting of coinage by keeping the prices up higher than melt or spot values?
3) If the Mint backs the coin for bullion value than no doubt, at some point, in a few years the coin will increase above the Mints current selling price.
Lastly: Why should the Mint just give away it’s wares for cost? Look at all the dealers who have gained nicely because of this over the years. Perhaps the Mint just got wise to them & is fighting back a bit?
Regardless of the reasoning behind their price structure the fact remains “We only have the Mint, as our source, for coinage here in the U.S. & they make the rules.” Ya want a coin, pay the price. Ya don’t want it, don’t buy it.
OK, that’s my opinion.
~The Yankee~
p.s. Anyone know what the slated date for the release of the 09′ UHR Eagle/Saint is going to be? I didn’t hear that it was even a definite they were even going to produce them yet, just speculation from Ed Moy & that he wanted to produce them.
Hi Yankee! I agree with your #2 point.
coiny
Come on people…we are collectors, not investors. If you want to buy an investment product, the mint makes gold bullion and sells it through dealers.
For collections, the mint can charge whatever they choose…people will vote with their wallet, or not, and that will then set the quantity of collectibles available.
Yes, I would like to buy a Ferrari for a limit over the cost of production. Or better yet, I want music for the cost of producing the CD, or software for the same. Do you think Microsoft is going to give me an 80% price break because I want to pay less.
Collector coins are not investment products. The mint provides those with limited mark up. If you want the pretty, limited edition, cool item to add to a collection…get out your wallet. If you want a chunk of gold, there are other ways to buy. The mint should charge what they can and I applaud them for looking to create profits…that will limit the taxes I pay for coins necessary for economic trade to tak place.
Yankee! There was some news about the saint UHR on the mints web site early this morning. They got some new fangled thing there that loads, i don’t know how to use it. I do know the new for 09, Lincolnpenny will be released on Febuary 22′nd at the Lincoln memorial, on his Birthday. With i coulda got or about the saint, and it’s realease date. Mail service ain’t so great lately.
Later!
coiny
To clear up the gibberish at the end. I said, i wish i could of got more news about the saint, it’s release date. Sounded kinda Lispy!
C