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U.S. Mint Short on Savvy, not Supply

Commodities / Gold and Silver 2010 Mar 01, 2010 - 12:49 PM GMT

By: Tarek_Saab

Commodities

Best Financial Markets Analysis ArticleAt the writing of this article, the first week of March 2010, the United States Mint is once again facing an extended "shortage" on silver American Eagles. Surprising? Hardly. This has become a regular phenomenon.


The U.S. Mint strikes a beautiful coin which is coveted by nearly all precious metals enthusiasts. Its gold and silver Eagles are industry staples, and every major dealer gladly promotes and sells these coins to its client base. But aspiring entrepreneurs take note: The United States government has never, and will never, run a business well. The U.S. Mint joins rarified air with the other ne'er-do-wells from the Federal Reserve and the U.S. Postal Service in an unrivaled trio of mediocrity.

Customers have recently inferred that the consistent shortages on American Eagles are indicative of dwindling silver supply. This presumption is false. Gold and silver bullion is readily available in large quantities.

So why the shortages?

The U.S. Mint has never adequately ramped up with the growing bullion demand over the past decade. It lacks the equipment and personnel to mint coins at necessary capacity. Furthermore, as has always been its practice, it continues to outsource blanks to the Sunshine Mint and Stern-Leach, among others, which adds another variable to potential bottle necks. According to Mineweb: "Federal laws and regulations say the gold (and silver) must be newly mined in the United States. Only a handful of refineries meet the standards and regulations to produce the blanks for the coins . . .

While gold and silver producers have repeatedly gone to government officials to get them to authorize an increase in the number of refineries which can produce the blanks and the facilities that can mint the coins, industry sources say they feel they have been stonewalled by mint officials who refuse to budge."

Conspiracy or incompetence? Take your pick. A review of the U.S. Mint website is revealing:

Quote:

"Since Congress created the United States Mint on April 2, 1792, it has grown tremendously. The United States Mint receives more than     $1 billion in annual revenues. As a self-funded agency, the United States Mint turns revenues beyond its operating expenses over to the General Fund of the Treasury." www.usmint.gov

You have to wonder: Since the directors of the U.S. Mint do not earn dividends off of revenue, and since there are neither shareholders nor board members to answer to, what is the incentive to grow revenues? This is a business whose members turn over all profits to the state. Sounds like, well . . .  I won't say it.

The U.S. Mint claims its mission is to "apply world-class business practices in making, selling, and protecting our Nation’s coinage and assets." By "world-class business practices" its means caring very little about whether it satisfies consumer demand or grows profitability. If the mint were a private corporation it would be capitalizing handsomely on ever-increasing demand for its product. Instead, the mint is habitually out of stock, even though Public Law 99-61 states that the mint is required to produce these coins "in quantities sufficient to meet public demand."

During the "Great Bullion Shortage of 2008," the shortage was unrelated to the overall supply of gold and silver, and wholly related to bottlenecks in production at the mints, strained to capacity as they attempted to meet consumer demand. This is an important point. Premiums rose because customers wanted delivery immediately and the mints could not keep up with the orders. The premiums did not rise because the metal itself was in short supply. In fact, according to the World of Mining Professionals Gold Miners Roundup, production from major mining companies is increasing. (See: www.womp-inc.com)

As of today, there is so much bullion on the open market for sale that most dealers have no trouble shipping product immediately. Dealers wait in eager anticipation for the next downslide in the Dow to field the inevitable onslaught of orders once again. Just like 2008, the mints will create bottlenecks in getting supply to customers, premiums will rise, and the U.S. Mint will be the first to halt sales.

As a dealer, we happily sell the U.S. Mint coins, but we reluctantly turn away customers when the mint halts production. It is an unfortunate and very unbusinesslike situation, and in the end, the American citizen is left to wonder when the government will work for the people.

Til next time, that's my Saab Story.

By Tarek Saab

www.guardiancommodities.com

Tarek Saab is a former finalist on NBC's "The Apprentice" with Donald Trump. He is an international speaker, syndicated author, entrepreneur, and the President of Guardian Commodities. His website is www.guardiancommodities.com

© 2010 Copyright Tarek Saab - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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