Despite $100 Bill Debacle, Mint Turns Down Gold/Silver Eagle Profits

By Aaron Krowne

Yesterday the US Mint finally admitted publicly what many have suspected for some time: it has been struggling with printing of the new $100 bills (the first to bear certain advanced security features, as well as Tim Geithner’s signature) due to technical difficulties.  This explains months of mysterious delays.  The bills are apparently so high-tech and complicated that the Mint cannot get them right… large numbers of the bills (possibly as high as 30%) end up with a ridiculous crease right up the middle, leaving a completely blank strip when stretched flat.   The bills will have to be electronically sorted and the bad ones destroyed.  Meanwhile, the last edition of the $100 note will simply be re-issued, bearing good ‘ol Hank Paulson’s signature.

The debacle could cost the Mint up to $120 million, as the new bills are already approximately twice as expensive to print as the last edition of $100’s.

The US Mint is supposed to turn a profit from coin sales.   Aside from premiums on collectible and bullion coins, this includes “seigniorage” — the difference between the production cost and legal tender value of normal coins.  But they are already losing money on minting pennies and nickels, due to the metal content of these coins being too costly relative to the face value.  Now we have the $100 bill debacle.   So you might be forgiven for thinking that the Mint would be doing everything it could to issue as many gold and silver Eagle coins as possible — a product carrying significant premiums, for which there has been huge demand in the last few years.  In fact, demand has been so huge, the Mint has regularly “run out” of supply.

The Mint has given excuses for this relating to its inability to “source blanks” of the coins.   However, it is unclear why after more than two years, the Mint cannot source simple blank rounds.   In fact, over this time span, you would think that they could serve as a driving force to set up a supply pipeline to produce the blanks.   You would think they would lobby Congress to get the law changed or augmented to make this process easier.

Instead, they have done exactly the opposite: H.R. 6162 Coin Modernization, Oversight, and Continuity Act of 2010, loosens the language in the existing law so that the Mint no longer has to “meet public demand” in the issuance of gold and silver Eagle coins.  Of course, it was not already, but people were starting to notice that the Mint itself was in violation of the law by not complying.   The old language (in section 5112 of title 31, United States Code) is:

e) Notwithstanding any other provision of law, the Secretary shall mint and issue, in quantities sufficient to meet public demand, coins which— (1) are 40.6 millimeters in diameter and weigh 31.103 grams; (2) contain .999 fine silver; (3) have a design— (A) symbolic of Liberty on the obverse side; and (B) of an eagle on the reverse side…

The new language is:

(e) Notwithstanding any other provision of law, the Secretary shall mint and issue, in quantities and qualities that the Secretary determines are sufficient to meet public demand, coins which— (1) are 40.6 millimeters in diameter and weigh 31.103 grams; (2) contain .999 fine silver; (3) have a design— (A) symbolic of Liberty on the obverse side; and (B) of an eagle on the reverse side…

Ah, the old “bureaucrat gets to use his own discretion” canard.  We know what this means: now, given the cover of looser legal language, the Mint will sit on its lazy ass and continue losing taxpayer money, instead of selling us the Eagles we so demand.

Isn’t government great?

Of course, we know the ulterior motive here.  The Mint’s profits take a back seat to suppressing retail demand for gold and silver.  To the extent gold and silver Eagle sales pick up, the prices of the underlying metals will take off, in a self-reinforcing effect.  By contrast, to the extent demand is suppressed with rationing at the retail level, stocks of metal are not drawn down.  This keeps the metal spot prices (which are widely quoted as “the” gold and silver prices) and wholesale prices relatively down.

Just another way to keep the dollar, Treasuries, and the paper money banking system (especially the major gold and silver ETFs) looking good relative to precious metals, brought to you by the government and their buddies on Wall Street.  I say don’t be fooled, and if you can’t get Eagles, there’s always Canadian Maple Leafs, Austrian Philharmonics, and South African Krugerrands, in ample supply.  So if you’re gonna buy, buy, and let the US Mint drown in its own red ink.