After putting the program on hold earlier this week, today the United States Mint has relaunched the eagerly awaited America the Beautiful Silver Bullion Coins. If primary distributors wish to purchase the coins from the Mint, they must agree to a new set of terms and conditions, which includes price caps and very specific guidelines for distribution.
Despite extremely limited mintages of only 33,000 coins per design, the coins technically represent a bullion series. By law, the coins must be distributed through the United States Mint’s authorized purchaser network. A small group of 11 primary distributors are able to purchase the coins directly from the Mint based on the market price of silver plus a mark up of $9.75 per coin.
When one of the distributors started charging considerably more than their cost, customer complaints prompted the US Mint to put the program on hold.
The series has relaunched today with a new set of terms and conditions for authorized purchasers.
1. Authorized Purchasers shall make available for sale to the public all 2010 America the Beautiful Silver Bullion Coins that they acquire. The intention of this condition is to ensure that all 2010 America the Beautiful Silver Bullion Coins minted and issued by the United States Mint are sold to the public.
2. Authorized Purchasers may charge to their customers a price no higher than ten percent above the price at which the Authorized Purchasers acquire 2010 America the Beautiful Silver Bullion Coins from the United States Mint. Authorized Purchasers may charge their customers a reasonable shipping and handling fee; however, Authorized Purchasers may not charge any other fee, premium, or other expense to their customers to circumvent this ten-percent markup limitation. The intention of this condition is to ensure that members of the public can obtain these coins at a reasonable and affordable purchase price.
3. Authorized Purchasers must establish and enforce an order limit of one coin of each design for each household. A household is defined as all persons of a family, or living as a family, at a single mailing address. The intention of this condition is to ensure the broadest and fairest public accessibility to 2010 America the Beautiful Silver Bullion Coins, which are limited-mintage United States Mint products.
4. Authorized Purchasers may not sell, either directly or indirectly, 2010 America the Beautiful Silver Bullion Coins to their officers or employees. The intention of this condition is to ensure that 2010 America the Beautiful Silver Bullion Coins are available to the public and that Authorized Purchaser officers and employees do not have an unfair advantage over members of the public.
Although there was definitely a problem with the distribution system in this particular situation, by imposing price controls, the US Mint is treading into dangerous waters. There may be future implications for the authorized purchaser system and average consumers seeking to invest in gold or silver bullion.
Back in late 2008, the price of silver had plummeted to less than $10 per ounce. The rush to buy physical silver resulted in supply shortages, which pushed premiums to around 50% even for typically low premium products like 100 oz. silver bars. The United States Mint’s American Silver Eagle bullion coins were typically sold for a $4.50 per coin premium or more.
This represented a mark up greater than 10% above the cost to the primary distributors who, at the time, were able to buy the coins directly from the Mint at a $1.40 per coin premium. There weren’t many complaints to the Mint, presumably because all silver bullion products were priced at similar premiums.
The next time there is a silver supply shortage and premiums start to rise, will the US Mint seek to impose price controls for Silver Eagle bullion coins? How do you think that will work out?