Minting costs of United States coins

Why does the U.S. mint sell bullion coins for such an exorbitant price
over spot?

http://www.usmint.gov/faqs/circulati...ting_coin#cost
says the following:

"Cost of Producing the Penny, Nickel, Dime, Quarter, Half-dollar and
Golden Dollar Coins.
Golden Dollar Half Dollar Quarter Dime Nickel Penny
10.03 cents 9.63 cents 4.29 cents 1.88 cents 3.13 cents .81"

These prices include both raw materials and manufacturing costs.
Because the total prices are just a few cents, the manufacturing costs
of course are necessarily just a few cents also.
The coins sell for 100, 50, 25, 10, 5, and 1 cents, respectively,
generating profit for the mint, because the price is the face value,
with no dependence on the production cost.

http://www.usmint.gov/about_the_mint... 005#starthere
says the mint produced 7.3 million half-dollars in 2005, and about 5
million golden dollar coins.

http://www.usmint.gov/mint_programs/...=MintageTotals
says the mint produced about 8.9 million silver eagles in 2005, and
about 357,000 one-ounce gold eagles.

For bullion, at
http://www.usmint.gov/faqs/index.cfm...AQSearchResult
the mint claims the following:

"We sell uncirculated American Eagle Bullion Coins to authorized
purchasers based on the London PM Fix (gold, platinum or silver) plus a
small premium to cover minting, distribution and marketing costs."

That means that the selling price for bullion IS dependent on the
production (manufacturing + raw materials) cost, and furthermore that
the mint sells the coins at cost (minting, distribution, and marketing)
rather than earning a profit on the coins. However, the actual prices
for the bullion coins don't support that claim; whereas the mint is
able to cover its costs and even make a profit by selling 5 million
golden eagles for only about 90 cents over cost, and by selling 7.3
million half-dollars for only about 40 cents over cost, it sells silver
eagles for about THREE DOLLARS over cost. Why this extreme discrepancy?
As the figures for golden dollars and half-dollars show, the mint's
manufacturing (excluding raw materials) cost for any particular type of
mass-produced coin, excluding raw materials, when several million of
the coins are minted per year, is only a few cents per coin, and thus
the total production cost is only a few cents more than the raw
materials cost, and the mint's total cost (including distribution, etc)
is only a few cents more than the raw materials cost. And the raw
materials costs for silver and gold eagles are, of course,
approximately the spot prices.
The figures for one-ounce gold eagles are similarly suspect; although
it produces an order of magnitude less per year, the figures (about
357,000 for the year 2005, 417,000 for 2004, etc) are still high enough
for the economies of scale which allow the mint to produce coins so
cost-effectively, yet the mint sells the one-ounce gold eagles for more
than TWENTY DOLLARS over cost. Nor can the mint claim that this is due
somehow to a high manufacturing cost associated with the particular
type of coin involved, because if that were true, then the 1/2, 1/4,
and 1/10-ounce gold eagles would have twenty dollar markups as well (in
fact, they would have even higher markups, since less of them are
produced and thus they have less advantageous economies of scale),
whereas of course in fact those smaller coins have markups far less
than twenty dollars.
Is the mint actually taking a profit on silver and gold eagles? Is this
permitted by law?
If the mint were indeed taking a profit, and acknowledged this (and it
were permitted by law), then the markup would seem reasonable; it's
about 4% over spot. But if bullion coins are supposed to be sold at
cost, then the mint appears to be violating its directive.

In article . com,
goldgoog wrote:

Why does the U.S. mint sell bullion coins for such an exorbitant price
over spot?

The way the bullion Eagle prices are set is generally spot plus some
percentage. For the gold 1oz piece, I believe the premium is something
like 3%. But for smaller coins, the premium is higher: around 9% for
the 1/10oz piece, if memory serves. (For platinum the price premiums go
from 4% to 15% for the various sizes. For the silver piece, the price
is spot + $1.25.)

Assuming these figures are correct, & further assuming (for easy math)
a gold price of $550/oz, then the price for a 1oz. coin would be around
$566.50, & the 1/10oz piece would go for $59.95.

You won't even see these coins at this prices because the Mint doesn't
sell individual bullion coins to the public; you have to be a
bullion/coin dealer with minimum net worth requirements. This means
that you're either buying from one of these dealers, or from a
second-tier dealer who's bought from the authorized distributor; and
each of these parties adds his own markup.

Are these markups justified? Hard to say. It seems to cost only a few
cents to crank out base-metal circulation coins, but it's a bit
difficult to extrapolate out to the lower mintages of bullion pieces.
For the Silver Eagles, which have mintages between 3 & 11 million, the
10-cent figures given for halves & golden dollars sound reasonable, but
gold bullion pieces are lucky to get past 1 million, & the platinum
pieces are often just a tenth of that; manufacturing cost per coin is
bound to go up. How much depends on how the Mint allocates fixed costs
across all its output.

There may also be some extra costs associated with handling precious
metals. The Mint doesn't simply bag up the gold coins it produces. It
never did, even when gold was part of the regular currency system;
people were & are paranoid about losing the least amount of gold from
the abrasion or gouging you get by jostling bags of coins around. So,
they have to carefully pack all the pieces they make into plastic
tubes. There's also an emphasis on the looks of the coin in itself,
which means that the presses have to operate at a slower rate to ensure
a good strike. The pieces may even be inspected & rejected if they
don't meet standards. How much these sorts of measures add to the cost
of making the coins I don't know, but they're bound to add something.

In addition, the proof platinum pieces feature a new set of reverse
designs every year. This can add a lot of cost to the program
(particularly given the low proof mintages of recent years), but I
don't know if the proofs are considered part of the bullion program or
part of the numismatic one.

Are these markups legal? Since the later 1990s, the Mint has been
operating out of a so-called "Enterprise Fund", which gives it a lot
more leeway than most government agencies in these matters. The Mint
is, however, obliged to run its programs at a profit, which means that
it can't lose money on one program, even if it can cover the costs from
the profits of another program. At any rate, the prices charged are
not too far out of line of other countries' bullion programs, so the
Mint probably figures that it would be stupid to forego these potential
profits.

http://www.usmint.gov/faqs/circulati...q_circulating_
coin#cost
says the following:

"Cost of Producing the Penny, Nickel, Dime, Quarter, Half-dollar and
Golden Dollar Coins.
Golden Dollar Half Dollar Quarter Dime Nickel Penny
10.03 cents 9.63 cents 4.29 cents 1.88 cents 3.13 cents .81"

These prices include both raw materials and manufacturing costs.
Because the total prices are just a few cents, the manufacturing costs
of course are necessarily just a few cents also.
The coins sell for 100, 50, 25, 10, 5, and 1 cents, respectively,
generating profit for the mint, because the price is the face value,
with no dependence on the production cost.


http://www.usmint.gov/about_the_mint...ction=producti
on_figures&allCoinsYear=2005#starthere
says the mint produced 7.3 million half-dollars in 2005, and about 5
million golden dollar coins.


http://www.usmint.gov/mint_programs/...tion=MintageTo
tals
says the mint produced about 8.9 million silver eagles in 2005, and
about 357,000 one-ounce gold eagles.

For bullion, at
http://www.usmint.gov/faqs/index.cfm...AQSearchResult
the mint claims the following:

"We sell uncirculated American Eagle Bullion Coins to authorized
purchasers based on the London PM Fix (gold, platinum or silver) plus a
small premium to cover minting, distribution and marketing costs."

That means that the selling price for bullion IS dependent on the
production (manufacturing + raw materials) cost, and furthermore that
the mint sells the coins at cost (minting, distribution, and marketing)
rather than earning a profit on the coins. However, the actual prices
for the bullion coins don't support that claim; whereas the mint is
able to cover its costs and even make a profit by selling 5 million
golden eagles for only about 90 cents over cost, and by selling 7.3
million half-dollars for only about 40 cents over cost, it sells silver
eagles for about THREE DOLLARS over cost. Why this extreme discrepancy?
As the figures for golden dollars and half-dollars show, the mint's
manufacturing (excluding raw materials) cost for any particular type of
mass-produced coin, excluding raw materials, when several million of
the coins are minted per year, is only a few cents per coin, and thus
the total production cost is only a few cents more than the raw
materials cost, and the mint's total cost (including distribution, etc)
is only a few cents more than the raw materials cost. And the raw
materials costs for silver and gold eagles are, of course,
approximately the spot prices.
The figures for one-ounce gold eagles are similarly suspect; although
it produces an order of magnitude less per year, the figures (about
357,000 for the year 2005, 417,000 for 2004, etc) are still high enough
for the economies of scale which allow the mint to produce coins so
cost-effectively, yet the mint sells the one-ounce gold eagles for more
than TWENTY DOLLARS over cost. Nor can the mint claim that this is due
somehow to a high manufacturing cost associated with the particular
type of coin involved, because if that were true, then the 1/2, 1/4,
and 1/10-ounce gold eagles would have twenty dollar markups as well (in
fact, they would have even higher markups, since less of them are
produced and thus they have less advantageous economies of scale),
whereas of course in fact those smaller coins have markups far less
than twenty dollars.
Is the mint actually taking a profit on silver and gold eagles? Is this
permitted by law?
If the mint were indeed taking a profit, and acknowledged this (and it
were permitted by law), then the markup would seem reasonable; it's
about 4% over spot. But if bullion coins are supposed to be sold at
cost, then the mint appears to be violating its directive.

goldgoog wrote:
Why does the U.S. mint sell bullion coins for such an exorbitant price
over spot?


Because they can.

Slime Lowlife wrote:
The way the bullion Eagle prices are set is generally spot plus some
percentage. For the gold 1oz piece, I believe the premium is something
like 3%. But for smaller coins, the premium is higher: around 9% for
the 1/10oz piece, if memory serves.
Yes, the percentage is higher for the smaller coins, but that's
irrelevant; the point is that the absolute value is lower.

Assuming these figures are correct, & further assuming (for easy math)
a gold price of $550/oz, then the price for a 1oz. coin would be around
$566.50, & the 1/10oz piece would go for $59.95.
Which is a markup of $16.50 for the 1oz coin, but only $4.95 for the
1/10oz coin. This is highly suspicious, considering that the production
numbers for the 1oz and 1/10oz coins are similar. The manufacturing
cost (excluding raw material cost) for manufacturing a coin doesn't
increase by 333% just because the coin is bigger. So if the mint is
running a profit by selling 1/10oz coins for $4.95 over spot, then it
can run a profit by selling 1oz coins for $4.95 over spot too. This is
my point.

You won't even see these coins at this prices because the Mint doesn't
sell individual bullion coins to the public; you have to be a
bullion/coin dealer with minimum net worth requirements. This means
that you're either buying from one of these dealers, or from a
second-tier dealer who's bought from the authorized distributor; and
each of these parties adds his own markup.
True, but the vast majority of the price over spot is due to the mint,
not due to the resellers. It's the mint's markup I'm addressing.
(Besides that, buygoldatcost.com sells the coins even in small
quantities for what appears to be either the mint's price or very close
to the mint's price.)

they have to carefully pack all the pieces they make into plastic
tubes. There's also an emphasis on the looks of the coin in itself,
which means that the presses have to operate at a slower rate to ensure
a good strike. The pieces may even be inspected & rejected if they
don't meet standards. How much these sorts of measures add to the cost
of making the coins I don't know, but they're bound to add something.
Yes, but $8,250 to inspect and pack a mere 500 1oz coins into a box?
And $24,750 to inspect and pack 5000 1/10oz coins into a box? I don't
believe it.

Well, as I believe I noted earlier, these prices aren't actually too
far out of line from other bullion pieces. That, plus the mandate that
the Mint not lose any money, means that it'll pretty much charge what
the traffic will bear. Or, as "bgg" wrote in his post, "Because they
can!"

I don't think it's illegal as such. And, as long as the prices aren't
out of line of other popular bullion pieces (& they may even be cheaper
than the Chinese Panda coins), I don't think it'll be easy to sustain
charges of price-gouging against the US Mint.

Frankly, I wouldn't mind if some of the higher premiums went away
either (especially on the Silver Eagles, which is what I mostly put
away), but if we were really serious about buying bullion without
paying the markups, we'd be going after older Kruegerrands & sovereigns
& Mexican pesos & the like.


In article .com,
goldgoog wrote:

Slime Lowlife wrote:

(long text snipped out for brevity)

they have to carefully pack all the pieces they make into plastic
tubes. There's also an emphasis on the looks of the coin in itself,
which means that the presses have to operate at a slower rate to ensure
a good strike. The pieces may even be inspected & rejected if they
don't meet standards. How much these sorts of measures add to the cost
of making the coins I don't know, but they're bound to add something.

Yes, but $8,250 to inspect and pack a mere 500 1oz coins into a box?
And $24,750 to inspect and pack 5000 1/10oz coins into a box? I don't
believe it.

Indeed, part of the original poster's problem is his insistence on
buying only American AGE and ASE coins. Bullion is bullion, so long as
the coin is not a counterfeit. There is very little premium on small
silver bars (Englehard and J & M are widely accepted), although there
is no requirement than any buyer pay you "spot" should you care to
sell.

You (original poster) didn't know that? Many dealers buy gold bullion
coins at 3% (or so) under spot and silver bullion at $1.00 or $1.50
under spot (MOL). However, I will grant that buybacks of American
Silver Eagles are typically more generous.

oly