Thanks to a decision by U.S. Mint officials, buyers last fall paid exorbitant prices for American Eagle gold coins while a chosen few distributors raked in handsome profits. This is the scathing conclusion recently reached by investigators for the House subcommittee on consumer affairs and coinage, chaired by Rep. Frank Annunzio (D-Ill.).
The closed system of sales, through authorized dealers, led to a bizarre situation where American coin collectors paid more for the Eagle coins than customers overseas did. That's because the authorized distributors can charge whatever the traffic will bear, and sales of the American Eagles have nosedived in the foreign markets, where they must compete with bullion coins from other nations.
But U.S. Mint Director Donna Pope rejected the congressional findings, saying that pent-up demand caused high prices after the coin was released Oct. 20. Since then, she said, the premiums charged by most distributors have fallen. She rejected as too costly the suggestion that the Mint establish its own distribution system to sell bullion coins directly to the public.
The investigators spent months studying the Eagle distribution system, and suggested that there was "profiteering" on the retail price of the coins. Our associate Stewart Harris obtained a copy of their unpublished report, which blasts the Mint for setting up a system that in some cases made buyers pay premiums of 40 percent or more.
Not all 25 dealers cooperated with Annunzio's investigators. But one who did had bought half-ounce Eagles from the Mint for $205.22 last Nov. 22, and resold them at $234.53 -- a 14 percent markup -- before he had even removed them from the Mint loading dock.
One of the authorized distributors charged buyers in this country as much as 9 percent more than he charged overseas customers. Investigators called this "a textbook example of the harm caused by the Mint limiting its dealings to a selected cartel of distributors."
They added this remark on the dealer's price differential: "Such a pricing scheme is contrary to any notion of cost, and appears solely to be profiteering to cash in on American demand for fractional coins." Eagles are sold in one-tenth ounce, quarter-ounce and half-ounce denominations, as well as in the 1 ounce size.
The Eagle's market also suffered when it was discovered that many of the smaller denominations contained less gold than they are supposed to. At the time, the Mint guaranteed only that the average weight of the coins in a bulk shipment would be correct. Now the Mint insists that every coin contains at least the minimum amount of gold.
Annunzio's investigators suggested that the Mint's distribution system may not only be unfair but also illegal. They noted that Congress directed the Mint to sell the coins "to the public."
The Mint argues that the law should have said "directly to the public" if Congress didn't want them sold through authorized distributors. But when a coin dealer who wasn't among the 25 authorized dealers threatened suit, the Mint made him an official distributor, according to the report.