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Collectors get burden, bullion buyers get deals

Gold coin demand is soaring. The U.S. Mint is selling oodles more bullion coins both gold and silver.

We are reminded of that every day when we see where bullion is trading.

But who is more important to the Mint, the collector or the bullion buyer?

The latest figures from the U.S. Mint in the 2015 annual report show that in terms of profit returned to the Mint, the collector is more important.

Our purchases of the Mint’s line of collector coins earned a profit of $66.8 million. This surpassed the profit earned on bullion coins by $5.8 million, which returned $61 million.

Unfortunately, the only thing we get from these statistics is perhaps some sort of bragging rights.

Because the reality is that to make that profit, the Mint is raising collector coin prices.

Revenue from collectors sales actually fell by 10.1 percent to $453.2 million from the year before.

If revenue falls and profits rise, the only way to make that trick happen is higher prices – and collectors have noticed.

Now for every dollar a collector sends to the Mint to buy something, the Mint keeps 14.7 cents in profit. A year ago it was 10.1 percent.

Anyone who watches proof set sales figures, mint set figures, and other meat and potatoes offers can watch the mintages decline year by year.

Obviously, the trend cannot go on forever, or we will all quit buying.

Can bullion coins take up the load?

The $61 million profit here sounds impressive. Revenue numbers are even more so.

The Mint sold $2.1 billion worth of precious metal bullion coins, up 17.2 percent from the year before, but the Mint had to sell 25.4 percent more bullion ounces of gold and silver to achieve this due to falling metal prices in 2015.

That bullion coin revenue number is more than four times collector coin sales figure.

However, the bullion profit margin is just 2.9 percent.

This bullion profit margin figure is an improvement on the 1.5 percent figure from the year before.

So the Mint is raising prices here as well, but from a far lower starting figure.

If the Mint were working on a 2.9 percent margin for collector coins, it would earn just $13.14 million in profit.

The result would be we collectors would have $53.66 million more in our pockets to spend on other coins.

That won’t happen.

Business today teaches that margins should be even higher, say more like 20 percent.

But collectors do notice price hikes and they act accordingly.

Principal Deputy Director Rhett Jeppson notes in his summary that there is a “shrinking customer base of numismatic hobbyists.”

The question for the Mint leadership team is whether this is simply a matter of older hobbyists leaving numismatics because of age, or outraged hobbyists reducing buying because of higher prices.

What they decide will impact what you will pay for your favorite issues in the years to come.

Why are margins for bullion so much lower?

A major reason is there is so much competition.

If the Mint raises prices on American Eagles, buyers might switch to Canadian Maple Leaves or Austrian Philharmonics, or even privately manufactured bars and medals.

There is no competition for collector coins.  Only the U.S. Mint can be the source of these.

So perhaps the Mint should consider at least saying thank you to collectors for being the larger source of its growing profits.

Buzz blogger Dave Harper has twice won the Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper “Numismatic News.”

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