Wow!! The Mint has suspended sales of all silver products (except the 2011 medal) and is currently repricing them. I wonder why gold products have not been suspended until Wednesday?

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Permalink Reply by Clair Alan Hardesty on September 27, 2011 at 11:28am

Unfortunately, this sort of repricing can take as much as three weeks. Hopefully, they will get it done much sooner but we may not have any idea on the new pricing until they announce the price of the anniversary set. The mint really needs to get the power to respond to situations like this on a much faster tack. I am really not sure why they had to take the products off line to reduce prices, perhaps they had to in order to suspend ATB sales for the new 2011 coin before any are shipped. The silver (& gold) spot price is already on its way back up today but only time will tell where it is when the mint finally acts.

Gold items do not need to suspend because the mint probably doesn't mind if someone wants to buy before the serious price reduction that will happen tomorrow and probably next week as well (it may take two weeks for the mint's pricing formula to fully react to this change). They only suspend gold items (that are on the pricing grid) when prices rise too fast for their weekly adjustment. Again, the mint needs to do better. They need the authority to do at least daily price adjustments.

I honestly suspect that the spot may rise enough for the mint to restore sales at the previous prices before they can accomplish a repricing (price reduction) event. I still hold hope that the spot will stay low long enough to get us a decent price on the upcoming anniversary set.

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Permalink Reply by Buffalo on September 27, 2011 at 12:31pm

I think the Mint would be worried that daily or more often price adjustments would lead to a a lot more order cancellations and re-orders, and returns with the high prices and high volatility in the markets. The price of gold fluctuated more than $100 just yesterday on the Kitco charts. I think it will be a challenge for them to find a way to react quickly and I think the volatility will continue.

I've thought sometimes it would be a good idea for them to price at melt value plus either a percentage or a flat dollar amount per coin, so the prices would automatically adjust to the spot prices. But again with high volatility and big sudden price drops I think it would cause a big increase in cancellations, re-orders, and returns, and concentrate sales into small time windows, and the Mint would likely see all of that as worse than the current situation..

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Permalink Reply by Clair Alan Hardesty on September 27, 2011 at 3:47pm

The weekly price adjustments and the 7 day return policies do go hand in hand. You are right that if the mint was to go to daily or spot based pricing they would also have to act more like PM retailers and render orders as binding contracts, with cancellation penalties and a no-returns policy.

They should have the power to reset prices without having to publish in the register, a very slow process at its best. The director should be able to order a repricing to keep sales going when large price swings break the weekly process or to reprice items that are not covered by the weekly schedule without having to wait for some other government body to act. How hard would it have been to order a $10 per ounce reduction in the price of silver items in association with recent events? 

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Permalink Reply by Buffalo on September 27, 2011 at 4:54pm

I agree 100% they need some way to respond quicker. Without changing their return and order policies, maybe going to a pricing grid like for gold would at least be a little quicker than having to publish the prices. Having to publish prices in the register seems like a negative for everyone including the Mint.

Really, with volatility as high as it has been and probably likely to continue, I don't see any ideal solution since even weekly changes don't keep up with the price moves. And I really doubt the Mint wants to conduct business like a regular bullion dealer when collectors are buying numismatic items from them that sometimes have legitimate reasons for returns that have nothing to do with price. If I knew I had no option to return a badly damaged item to the Mint I would be very reluctant to buy based on my experience.

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Permalink Reply by Clair Alan Hardesty on September 28, 2011 at 9:03am

I agree. I don't want the mint to operate like a retail PM dealer. After all, they are the sole manufacturer of all US coins, circulating and numismatic. The new volatility also puts the hard weekly adjustment in a less than optimal position as well. There is no perfect solution but if the director had the ability to order a repricing event at his/her discretion, and make it happen in a day, we all might be better off. Perhaps putting in some sort of price guarantee that would honor price decreases that occur prior to shipment but provide at least low volume buyers protection against price increases would be appropriate. There are clearly a lot of details that would have to be worked out but the mint has the luxury of not having to make a profit for stockholders which allows it to do things that are more favorable to its customers. Up until a couple years ago, it was the clearly stated goal of the mint to make zero profit on numismatic sales, or at least as close to zero as it could manage without ever going into the red. When it raised prices after one year where profits came close to zero (which proved the previous system worked) it left that ideal behind in favor of a plan to maintain a significant profit margin. even in trying times. This is part of the reason that we are seeing more suspensions (in addition to market volatility), the mint seems unwilling to let profit approach zero, something that in years past was its stated goal.

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Permalink Reply by Buffalo on September 28, 2011 at 11:23am

Personally, I think the way the Mint 2010 Annual Report allocated expenses between the major segments (circulation coins, bullion, and numismatic) and even within those areas makes their segment "profit"  and "results" claims questionable.

The text of the section on the bullion segment reads in part "Bullion sales generated the largest portion of the United States Mint's total revenue. Consequently, a greater portion of sales, general, and administrative (SG&A) expense was allocated to the bullion program in FY 2010. Bullion SG&A increased to $21.8 million in FY 2010 from $12.1 million last year. Bullion net income increased 68.8 percent to $55.2 million in FY 2010 from $32.7 million in FY 2009. The bullion program was successfully managed to just below the standard net margin of two percent."

It's reasonable to assume greater volume in the bullion segment would increase expenses, but this text doesn't seem to be saying the allocated SG&A expenses were actual costs, just that it was increased because bullion sales generated the largest portion of revenue.

There is a chart in the report's section on circulation coinage that shows the Mint allocated SG&A expenses of $9.8 million to dime production, $7.6 million to quarters, and $60.8 million to dollar coins. Those denominations show seniorage per $1 face value issued of 43¢, 49¢, and 68¢ respectively. In other words, they all made profits for the Mint. The chart shows no SG&A costs allocated to the cent and nickel coins and shows the seniorage per $1 issued as -79¢ for the cent and -85¢ for the nickel. So the Mint allocated no SG&A cost to the two denominations that were produced at a loss, even though they obviously must have generated costs if the other circulating coins did.

These kinds of things seem to indicate at least some of the allocated expenses don't reflect actual expenses for the particular item it is charged to. It also seems at least some of the costs, etc are not really kept separate between the supposedly separate market segments.

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