Why are things the way they are? Huh? I ask this question because of the beginning of a new gold bullion coin program, the one the U.S. Mint calls the 24-karat one-ounce gold bullion coin with the Buffalo nickel design.
This has set off a new round of questions about why the Mint won?t sell gold bullion coins directly to collectors. Sure, they sell proof versions to collectors, but not the coins with the regular finish.
For an answer, we have to go all the way back to 1986 when the American Eagle gold bullion coin started. In that year the Mint was to gold bullion coins what the Mets were to baseball prior to the 1969 season.
Baseball had their Miracle Mets. We got the Miracle Mint. Both stories were great. As far as baseball was concerned, it was tough luck for me, I was a Cubs fan in 1969. In my neck of the woods at the time, I rooted for the Twins in the American League and the Cubs in the National League. I lived in Wisconsin before the Brewers and after the Braves left Milwaukee.
Just as I was disappointed by the Cubs performance in 1969, I was disappointed that the Mint did not offer bullion coins directly to collectors in 1986. The question was why? Well, if you are a major league team, or want to be a major league marketer, you look around you and copy those who are visibly successful.
Sure, there are basics that everyone does, but there is also an element to every winner that is unique. They find the groove and stay in it.
Back in 1986, the winning team was the Royal Canadian Mint. It followed the previous winning team that marketed the South African Krugerrand. Neither popular one-ounce gold coin was sold one at a time directly to collectors.
They were sold in large quantities to distributors, which in turn sold them to other dealers who sold them to individual bullion coin buyers. This was the way the U.S. Mint copied. It wanted to be a winner, too.
Naturally, we raised the objection that selling directly to collectors would not preclude using a distribution network, but the practicalities of cost ruled it out. Mark-ups were low. The one-ounce coin has a three percent mark-up. There is no way the U.S. Mint could make money with that kind of mark-up one coin at a time.
Worse, as every collector knows, the price of gold fluctuates daily. How do you price a product with that kind of rapid change? Well, the distribution networks have a system where as soon as network dealers agree to pay a certain amount, the Mint turns around and buys an equal quantity of gold to lock in that three-percent profit and still has the same quantity of bullion in its possession. How would you do that for a couple of million collectors who might want one coin?
The Mint had tried to sell American Arts Gold Medallions directly to collectors, 1979-1984. It was an awful system that required postal cancellations that would prove that I or anyone else did indeed place an order when gold was at such and such a price and that I did not try to claim that gold was $10 cheaper.
It didn?t work very well. No one was happy with it. We complained that they were medals, not coins. We complained that the ordering system was cumbersome. We wanted real coins like the Canadian Maple Leaf, which was introduced in 1979.
The Mint did the logical thing. It copied the winners. We collectors got what we got. We ordered 446,290 proofs in 1986, which is a lot, but hobbyists gradually lost interest and proof mintages fell.
Now we have the .9999 fine Buffalo coin. It is a correction to another aspect of 1986. Then the Congress copied what they thought was the winner, the Krugerrand, and mandated that the American Eagle fineness would match it, .9167. It didn?t bother American gold buyers, but the rest of the world much preferred .999 fine (now .9999 fine). The Mint can now offer the Buffalo.
The Mint wanted to be a winner in 1986. It has become one. It is not likely to change any more than the Mets of 1969 would yield to the Cubs.