Four witnesses appeared April 7 before the House Committee on
Financial Services’s Domestic Monetary Policy and Technology
Subcommittee for a 70-minute hearing titled “Bullion Coin Programs of
the United States Mint: Can They Be Improved?” and recommended changes
in the Mint programs. The subcommittee is chaired by Rep. Ron Paul, R-Texas.
Invited by the subcommittee to offer testimony to and answer
questions from subcommittee members were Coin World Editor
Beth Deisher; Terence Hanlon, president of Dillon Gage’s Metals
Division in Dallas; Ross Hansen, founder of Northwest Territorial Mint
in Auburn, Wash.; and Raymond Nessim, CEO of Manfra, Tordella &
Brookes Inc. in New York City.
Accepted as part of the record were comments submitted by Texas
dealer Mike Fuljenz, owner and president of Universal Coin and Bullion
in Beaumont, who lost hundreds of thousands of dollars in advertising
after the Mint changed its distribution rules for the America the
Beautiful 5-ounce .999 fine silver bullion coins.
Rep. William Lacy Clay, D-Mo., ranking Democrat on the
subcommittee, obtained unanimous consent to seek responses from the
U.S. Mint since Mint officials were not invited by the subcommittee to
present testimony at the hearing. The Mint released a statement
shortly after the conclusion of the hearing (see related article above).
In his opening remarks before the formal presentation of
testimony, Paul said it is understandable that the American public is
flocking to gold and silver bullion coins, citing economic concerns.
Also, “in a market as potentially volatile as the precious metals
market, and given the Mint’s status as a self-funding agency, it is
understandable that the Mint does not want to store millions of ounces
of precious metal planchets whose dollar value could conceivably drop
by the time they are minted and sold,” Paul said. “However, this
uncertainty and the cyclical nature of coin sales makes it difficult
for planchet suppliers to gauge future demand, meaning that they are
less likely to invest in capital equipment to increase production,”
Paul said with unprecedented demand, silver American Eagle sales
are on target to top 48 million coins. “Considering that total
American silver production is only around 40 million ounces, this
would be a significant sales figure, making it all the more important
that the Mint minimize disruption.”
Deisher said, “Most of the Mint’s problems in marketing bullion
coins are rooted in an ongoing failure to understand who its customers
are and why they purchase bullion coins.”
Deisher cited as an example the 1995 10th anniversary set
comprising four gold Proof American Eagles and a Proof 1995-W American
Eagle silver coin that was only available in the set. The high-ticket,
limited-edition product at $999 stopped many collectors from seeking
to purchase the set, and interrupted the collector quest for series
completion, Deisher said.
Deisher also cited the proliferation of Mint coin programs and the
burden that places on collectors. Collectors, many of them on fixed
collecting budgets, are now having to be more selective by picking
just one series, with the desire for completeness a thing of the past,
Deisher referred to the Proof 1995-W American Eagle silver coin as
a “contrived rarity.” Only 30,125 of the 10th anniversary sets were sold.
On a related matter, Deisher said, “Marketing multi-year bullion
coin programs appears to be an area in which the Mint continues on a
self-destruct path, in which mistakes made in the first year of
offering dramatically reduce sales potential for the remainder of the
program.” She cited the First Spouse gold $10 coin program introduced
in 2007 in which dealers and speculators squeezed out individual
collectors. Secondary market prices soared and discouraged many
collectors from pursuing complete sets, she said. In 2009, the
American Eagle program was disrupted by the Mint sticking to its
mandate of striking bullion coins while abandoning production that
year for Proof gold and silver versions, thus placing a void in
collections of the series, Deisher said.
The America the Beautiful 5-ounce silver bullion coin program has
created significant problems in the collecting community, with
mintages for the 2010 coins a third of what Mint officials initially
announced, Deisher said. And with mintages set at 33,000 per design
and not 100,000 as previously announced, Deisher questioned the wisdom
of deciding to offer an Uncirculated version with the P Mint mark with
a mintage of just 27,000 coins per design.
Deisher said the Mint should be working ahead on programs to
ensure a smooth release. She said many of the problems plaguing the
U.S. Mint are not seen with other world mints. Among Deisher’s
recommendations to improve the Mint’s bullion coin programs:
➤ Avoid purposely creating rarities.
➤ Spend time and resources to better acquaint its marketing staff
with its various customer constituencies for its coin products.
➤ Better inform its customers as to when its coin products are
going to be available.
➤ Produce to demand by allowing a certain number of days for
collector versions of bullion coin products to be ordered.
➤ Increase bandwidth on its website to facilitate the handling of
high-traffic ordering periods.
➤ Secure more planchet suppliers, and better plan procurement and
manufacturing so as to avoid disrupting coin programs.
➤ Exercise care in scheduling bullion coin sales so that they are
more evenly spaced throughout the year and not release coins into the
marketplace at the end of a calendar year.
Hanlon noted that Dillon Gage, as an authorized purchaser, is a
key distributor of U.S. Mint bullion coins and is looking forward to
the introduction of the palladium series in 2011, authorized under the
American Eagle Palladium Bullion Coin Act of 2010. (The palladium
coins can be released only after a Mint market study.)
“This is an extraordinary time for the global precious metals
market as demand for these metals climb, and prices are at or near
record highs,” Hanlon said.
Hanlon testified that in 1981, the Economic Recovery Tax Act
established within the Internal Revenue Code tax rates of 28 percent
on long-term precious metals investments and 15 percent on securities
and mutual funds.
By lowering the precious metals investment tax rate to 15 percent,
Hanlon believes investment in U.S. Mint bullion products could
increased 30 to 50 percent.
In response to a question by Paul about the possibility of the
Mint selling bullion coins directly to the public instead of through
authorized purchasers, Hanlon said it would be wrong for the Mint to
do that, since the Mint would not be able to provide a two-way liquid
market and cannot hedge.
Hansen — who noted that two years ago he purchased Medallic Art
Co., once a primary producer of silver blanks for the Mint — said that
blank shortages have caused numerous problems, including:
➤ The premiums charged by the authorized purchasers to the
secondary market fluctuate wildly.
➤ Sales have been lost, depriving the Mint of significant revenue.
➤ The bullion programs of foreign mints have been allowed to
penetrate into the U.S. market.
Hansen said his firm has the ability to provide the Mint with
sufficient blanks in all precious metals. He said he has contacted
Mint officials about providing test blanks from which to determine his
firm’s acceptance as a supplier, but was rebuffed.
To improve Mint blank procurement, Hansen recommends:
➤ Creation of an industry advisory group comprising experienced
minting professionals (including equipment and raw material
suppliers), to deal with production.
➤ Engage in an aggressive vendor-development program to assure
that the Mint has multiple domestic suppliers to meet needs.
➤ That as part of the vendor selection, suppliers should have the
ability and capacity to expand production and supply blanks as needed.
➤ That the Mint maintain a large inventory of blanks and finished
coins to respond to surges in demand. Hansen said that Mint officials
also need a change in attitude.
“They often display an attitude that used to be attributed to the
phone company of ‘we don’t care, we don’t have to,’ ” Hansen said.
“Their attitude toward vendors and authorized purchasers is often
described as surly and arrogant.”
Addressing the silver blank shortages for American Eagles, Nessim
said the obstacles may be overcome by “extending some flexibility to
U.S. blank fabricators in order to help them invest in additional
capital equipment for increased capacity, maybe simply in the form of
minimum quantity order guarantee per annum for a certain period of
time, such as maybe three or more years.”
Of more concern to Nessim was how the Mint handled the America the
Beautiful silver bullion coin distribution by limiting production,
announcing sales for which authorized purchasers began wholesale
distribution, and then the Mint suspending allocations amid public
charges of price-gouging.
“We cancelled our sales agreements, which action placed us in a
very embarrassing predicament,” Nessim said.
As a wholesaler and authorized purchaser, MTB was ill-prepared to
retail market the coins to no more than one of each of the five coin
designs per household, he said. He noted the Mint issued new
directives to the authorized purchasers on March 9 for the 2011 series
(see Page 4 article).
To avoid future calamities, Nessim recommended giving the
authorized purchasers reasonable notice of price changes and minting
plans, keeping authorized purchasers informed of developments as they
occur, and lifting legislative obstacles that would allow the Mint to
strike coins dated from a previous year to meet its original
While the Mint does have experienced management in bullion,
procurement, precious metals, contracting and production, Nessim said
“what appears to be void is an experienced senior chief executive with
sufficient authority to act and report to a political appointee and to
a board of directors comprised of a cross section of specialists with
commercial experience, including U.S. blank fabricators and U.S. APs.”
Nessim said the U.S. Mint has not been responsive to companies who
want to supply the Mint with blanks, including MTB. He said MTB’s
parent company, which fabricates blanks, offered to send samples of
the firm’s blanks to the Mint for test strikes but was turned down by
Among the recommendations that Fuljenz made in his comments
submitted to the subcommittee are, for those who participate in the
Mint’s Bulk Program:
➤ Release dates should be spaced further apart. The Mint is
releasing Proof American Buffalo gold coins and Proof American Eagle
platinum and gold coins within a 35-day period. Releasing three big
programs in a short amount of time gives little time for dealers to
effectively market and fund the coins. Concerning retail dealers who
participate in the United States Mint’s Bullion Program, Fuljenz said:
➤ Dealers need more than 10 days’ notice about when new issues
will be released. Improve the transparency with 30 to 60 days’ notice
so dealers can plan their advertising and marketing.
➤ The Platinum bullion program needs to be consistently released
in the same quarter each year. “We’re already in the second quarter of
2011, but dealers and collectors still don’t yet know when 2010-dated
America the Beautiful special collector versions will be available,
how they will be sold and why they were even made.” (See related
article, Page 4, about the release of the first 2010 coin.)
➤ Properly identify on the Mint website national and local
distributors of U.S. bullion coins. ■