WASHINGTON (Kitco News) - Members of a Congressional panel questioned Thursday why the U.S. Mint has created a shortage of high-quality bullion coins, causing a speculative run-up in value.

The U.S. House of Representatives’ Domestic Monetary Policy Subcommittee was told that the country’s bullion coins are topnotch and have a potential high growth of profitability for the U.S. Mint and for the country. But testimony from the industry indicated there aren’t enough of them.

“The problem is there is high demand, but a shortage of the coins,” summed up Rep.  Ron Paul, R-TX, the chairman of the subcommittee.

The talk of a shortage brought sharp questions from some subcommittee members. “Why is that?” asked Rep.  William Clay D-Mo., the ranking member on the subcommittee. “It’s the Mint’s duty to supply sufficient demand and not to produce a speculative run.”

The subcommittee was told there is great buyer interest in such coins.  “Demand (and sales) of the coins could increase 30 to 50 percent if the Mint would allow U.S. companies to produce more blank (unstamped) coins,” said Terrence Hanlon, President of the Dillon Gage Metals Division, an authorized federal distributor.  “But they’re very arbitrary about it.  For instance, there is only one supplier of the popular platinum blanks and they are located in Australia.”

Rep. Carolyn Maloney, D-NY, wasn’t pleased with the Australian reference.

“In Australia?  Why can’t Americans produce those coins? We need the jobs” Maloney said.

Ross Hansen, founder of the Northwest Territorial Mint, said more of such coins should be produced in the U.S.  “We can and want to,” said Hansen, whose operation is the largest private minting company in the U.S. “I’ve told the U.S. Director directly many times but he says it isn’t a priority.  The U.S. Mint needs a change in attitude.  Their attitude towards vendors and authorized purchases is often described as surly and arrogant.”

Maloney continued to rail against the Mint. “Mr. Chairman, we need to get the Mint Director in here,” requested Maloney.  But she admitted later that there is only an acting director of the Mint; “it’s an appointed position and Senate approvals are behind,” she explained.

Raymond Nessim of Mantra, Tordella and Brookes, said there are ways to overcome the supply problems.

“The limited domestic fabrication capacity of silver blanks may be addressed by extending some flexibility to US blank fabricators in order to help them invest in additional capital equipment for increased capacity,” Nessim said.

He said established goals can always be improved by means of flexibility and transparency. “It may be simply in the form of minimum per annum quantity order guarantees,” he said.

Blaine Luetkemeyer, R-MO, asked who will bear the costs of increased issuances.

 ”The Mint is quite profitable,” answered Hansen.  “They could easily cover any increased cost in supply.”

   Nissim praised the Mint for protecting the U.S. public from potential price gouging in December 2010 when it issued new requirements for authorized purchasers. They included requiring authorized purchasers limit profit margins to no higher than 10 percent, and making all their allocations available for public sale. 

But there are many loopholes, pointed out Beth Deisher, Editor of Coin World.

“For instancethe requirement limiting one coin of each design for each household was circumvented by people assigning addresses to every dog, cat and cousin in the neighborhood,” Deisher said.

 Deisher, whom Rep. Paul called the go-to person for anyone with questions about coins after her almost three-decade career in the field as a reporter, recommended 10 changes to improve the U.S. Mint. 

The first was that the Mint “should avoid purposely creating rarities.”  Others involved better communication and transparency in dealings between the Mint, distributors and vendors.  She urged the Mint to increase bandwidth for its website to facilitate the handling of high-traffic ordering periods.

 Deisher also suggested that Mint marketing staff be more open about timing announcements of new collectors’ versions of bullion coin products.

“I am submitting comments of coin distributors who have lost several hundreds of thousands of dollars because they either missed advertising a product that was announced too late for their two-month deadline, or was pulled after they had spent thousands advertising it,” Deisher said.

When asked by Al Green, D-TX, why she thought American companies were not being asked to produce some coin blanks, Deisher shook her head slowly: “I don’t know,” she said, also declining to give an opinion.    

Hanlon’s recommendations also focused on communications between the Mint, its authorized purchasers and the broader retail dealer community.  “They should have regular dialogue,” he said. 

He also suggested that Congress could give a further competitive edge to the American Eagle bullion products by “adjusting the capital gains tax treatments of these investments – down from a maximum rate of 28 percent on long term gains - held more than one year - as a category of collectibles, to 15 percent to make them on par with securities.


By Peggy Orchowski; reporters@kitco.com

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