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Tarek Saab, President of GoldandSilverNow, has
posted an opinion on investor preference for Government issued
bullion over private mints. Tarek favours private mints and discusses some of the arguments
put forward for Government coins. As seems to be my habit, I offer come
comments:
"If one doubts the
integrity of our politicians and the financial system, why demand a coin
issued with the full faith of the same architects manipulating it? ...
Instead of blindly accepting the markings on any coin, buyers should always
be cautious."
I agree with the last sentence, but the rest of the argument can easily be
turned on private mints - greedy "private" banks, Enron, etc, there
are plenty of examples of privately run companies that have defrauded
consumers. The only thing that matters is the test of the market. I would
suggest that investor preference for Government coins is probably because of
decades of coins that have been of stated purity - can Tarek
name one case of underweight or under purity coins? I think this proves that
no matter what idiots are running the Government, they have not stooped to
interfering with the integrity of their mints.
Of course, this is not to say that debasement cannot happen and investors
should be alert to this. I think it is worth noting that the people running
Government mints, just like their private counterparts, take their reputation
seriously. All of them are part of the Mint Directors Conference and it is a small industry. It is my view that none
of them would take kindly to politicians telling them to debase their coins -
it would be an affront to their integrity and irreparably damage their
reputation and career in the industry. If it was done, I would not be
surprised to see whistleblowing, but if not
certainly to see resignations, which is what I would suggest investors watch
out for.
I think it is also improbable that politicians would bother to debase their
precious metal coinage. Considering how little is produced, what would be the
amount of money saved? Certainly it would be difficult to underweight the
coins as this is easily detected, so reducing the purity would be how it is
done but there is a limit to this. Again, this argument can also be turned on
private mints - it could be argued that the profit motive provides more
temptation to mint owners to save a few bucks by having slightly under purity
coins.
In the end, I this the point Tarek is making is a
double edged sword. Yes, politicians lie and are hard to trust, but if you
are so poisoned by this lack of trust that you question all Government
agencies, then I doubt that you will trust a profit seeking private owner of
a mint.
"worried about
dealers recognizing private-issue bullion"
On this point, Tarek is correct. Any decent bullion
dealer should know all the products out there and their reputation. If the
private coinage has a good name, a dealer should be willing to buy it back.
Some may be conservative and buyback at bit of a discount, but this may also
reflect the fact that there are not as many willing buyers. In any case,
investors should always consider their exit strategy and on that basis ask
those to whom you hope to sell, what they will pay for private issued
bullion, then you will have no surprises.
"The face value of
these coins is already inconsequential."
True, but I think when someone says a coin is legal tender, it is just a way
of saying they are Government issued and guaranteed.
"The availability
of government bullion rises and falls dramatically with market
conditions."
So, this is because demand rises and falls and the same applies to private
mints, probably more so as being profit focused they are less willing to sit
on unsold stock. Tarek's statement that dealers
were put on waiting lists (and some Mints have moved to rationing instead of
extending lead times) also applies to some private mints. I think the
problems that Government mint have experienced reflects the fact that
investors prefer their product over private mints, hence they have excessive
demand. It would be my view that if demand shifted to these private mints
then they would also experience availability issues. Northwest Territorial
Mint is an example as they have had the same lead time blowouts as Government
mints.
"Considering the
risk involved with the default of any business in our present economic
situation, and beyond that, the risk involved with the default in each
business’ bank, I find it mystifying that investors would harbor the
risk of floating hard-earned cash for lengthy periods of time."
How is this an argument against Government mints? It is private enterprises
that are failing and need Government bailouts. This is more an argument against
leaving your money with private mints. Anyway, in this current market, any
mint would have to be spectacularly mismanaged to lose money making coins and
bars, so I don't really think this is a big risk.
"many customers
purchasing U.S. Eagles are now being asked for their social security numbers
... the threat of a 1936 gold confiscation lingers like a bad toothache"
I doubt it is just about whether you are buying US Eagles, anti-money
laundering rules would generally require identification of any bullion
purchase - bar or coin, Government or private. It is how you buy it, not what
you buy that matters. If your worried about
confiscation, do it under the reporting threshold for cash and don't have it
mailed to you (otherwise records exist at the courier companies). It is also
worth noting that is confiscation occurs, whether it is legal tender,
privately issued, bars or coins, is not going to matter - they ain't going to leave any loopholes.
One final point. Don't take my comments above as an argument against private
mints. The fact is that Government mints are generally conservative organisations and are thus a bit more cautious about
making capital expenditure decisions to ramp up production in the face of
increased demand. Private mints provide welcome flexibility and are probably
more likely to want to take a risk on gearing up to meet demand. This is
needed - as I point out in this blog, the industry as a whole was/is not ready for
any significant increases in demand for gold coins. If gold ownership is to
be more widespread, we need more capacity, and quickly as the rush could come
any day if people lose confidence in the modern experiment with fiat
currency.
I'm a firm believer in free and fair competition and certainly some
Government mints could do with it and some will fear it, too bad. Let me
close with a plug for the Perth Mint. Of all of them, the Perth Mint is
probably best placed because while it is owned by a Government, is not subsidised and does not have a circulating currency
business to help with cross-subsidising its
products. Therefore it has had to survive by competing with private and
Government mints and so is ready for the challenge.
Bron Suchecki
Goldchat.blogspot.com
Bron Suchecki has worked in the precious metals
markets since 1994, when he joined the Perth Mint as an Administration
Officer in their Sydney retail outlet. In 1998 he moved to Perth to work in the
then fledgling Depository division. He has held a number of roles since then
in the treasury, risk and governance areas of the Mint.
All posts are Bron's personal opinion and not
endorsed by the Perth Mint in any way.
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