[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
BULLION COIN PROGRAMS OF THE
UNITED STATES MINT: CAN
THEY BE IMPROVED?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
DOMESTIC MONETARY POLICY
AND TECHNOLOGY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
APRIL 7, 2011
__________
Printed for the use of the Committee on Financial Services
Serial No. 112-25
U.S. GOVERNMENT PRINTING OFFICE
66-863 WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
HOUSE COMMITTEE ON FINANCIAL SERVICES
SPENCER BACHUS, Alabama, Chairman
JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina
KEVIN McCARTHY, California DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico AL GREEN, Texas
BILL POSEY, Florida EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK, GWEN MOORE, Wisconsin
Pennsylvania KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO R. CANSECO, Texas
STEVE STIVERS, Ohio
Larry C. Lavender, Chief of Staff
Subcommittee on Domestic Monetary Policy and Technology
RON PAUL, Texas, Chairman
WALTER B. JONES, North Carolina, WM. LACY CLAY, Missouri, Ranking
Vice Chairman Member
FRANK D. LUCAS, Oklahoma CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina GREGORY W. MEEKS, New York
BLAINE LUETKEMEYER, Missouri AL GREEN, Texas
BILL HUIZENGA, Michigan EMANUEL CLEAVER, Missouri
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
DAVID SCHWEIKERT, Arizona
C O N T E N T S
----------
Page
Hearing held on:
April 7, 2011................................................ 1
Appendix:
April 7, 2011................................................ 21
WITNESSES
Thursday, April 7, 2011
Deisher, Beth, Editor, Coin World Magazine....................... 3
Hanlon, Terence F., President, Dillon Gage Metals................ 4
Hansen, Ross, Founder and CEO, Northwest Territorial Mint........ 6
Nessim, Raymond, Chief Executive Officer, Manfra, Tordella &
Brookes, Inc................................................... 7
APPENDIX
Prepared statements:
Deisher, Beth................................................ 22
Hanlon, Terence F............................................ 28
Hansen, Ross................................................. 30
Nessim, Raymond.............................................. 34
Additional Material Submitted for the Record
Paul, Hon. Ron:
Written statement of Michael Fuljenz, President, Universal
Coin & Bullion, Beaumont, Texas............................ 36
Clay, Hon. William Lacy:
Editorial from Coin World, dated January 10, 2011............ 39
Response from the U.S. Mint to information provided by
witnesses during the hearing............................... 40
BULLION COIN PROGRAMS OF THE
UNITED STATES MINT: CAN
THEY BE IMPROVED?
----------
Thursday, April 7, 2011
U.S. House of Representatives,
Subcommittee on Domestic Monetary
Policy and Technology,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:01 a.m., in
room 2128, Rayburn House Office Building, Hon. Ron Paul
[chairman of the subcommittee] presiding.
Members present: Representatives Paul, Lucas, Luetkemeyer,
Huizenga, Hayworth, Schweikert; Clay, Maloney, and Green.
Chairman Paul. This hearing will come to order. Without
objection, all members' opening statements will be made a part
of the record.
We will now go to our opening statements.
I am pleased to be holding this very important hearing
examining ongoing concerns over the United States Mint's
bullion coin programs. Given the financial difficulties of the
last few years, and the possibility of large-scale inflation
due to the Federal Reserve's quantitative easing programs, it
is not surprising that many investors are rushing to purchase
gold and silver coins. As the world's largest mint, supplying
one of the world's largest markets for bullion coins, it is
imperative that the Mint be able to supply the bullion market
with an adequate quantity of coins.
Our witnesses represent various sectors of the coin
industry, each with a unique viewpoint, and I look forward to
hearing their perspectives on the Mint's bullion coin programs
and their suggestions on how to improve the Mint's efficiency,
for planchet shortages and minting stoppages has often been
focused on the Mint and its procedures for planchet purchases,
coin marketing, and bullion sales.
In a market as potentially volatile as the precious metals
market, and given the Mint's status as a self-funding agency,
it is understandable that the Mint does not want to store
millions of ounces of precious metal planchets whose dollar
values could conceivably drop by the time they are minted and
sold. However, this uncertainty and the cyclical nature of coin
sales makes it difficult for planchet suppliers to gauge future
demand, meaning that they are less likely to invest in capital
equipment to increase production.
Thus, with a huge upswing in demand, as we have seen
recently with Silver Eagles, the Mint is unable to source
enough planchets and the rush to produce enough one-ounce
planchets leads to a reduction in resources available to
produce five-ounce planchets, proof planchets, etc.
Silver and gold are in an unprecedented bull market right
now, with Silver Eagles selling at a rate that, when
annualized, would mean sales of 48 million coins this year.
Considering that total American silver production is only
around 40 million ounces, this would be a significant sales
figure, making it all the more important that the Mint minimize
disruptions.
I look forward to the testimony of our witnesses.
And now, I will yield for an opening statement to the
ranking member, Mr. Clay.
Mr. Clay. Thank you so much, Mr. Chairman, and thank you
for holding this hearing regarding the U.S. Mint's bullion coin
program.
And thank you to the witnesses for appearing in front of
this Subcommittee on Domestic Monetary Policy.
After reading the witnesses' testimony, I look forward to
their insight regarding those problems they have identified at
the U.S. Mint and what corrective measures the U.S. Mint should
make to address these problems.
Also, I notice that no representative of the U.S. Mint is
appearing in front of the committee for this hearing, and at
this time, Mr. Chairman, I would like to reserve the right to
have a comment period so that the U.S. Mint can make comments
in regards to this hearing for the record. Thank you so much.
Chairman Paul. Does anybody else care to make an opening
statement?
Okay. We will proceed to the testimony.
I would like to welcome the panel today. I am looking
forward to hearing their testimony.
And without objection, your written statements will be made
a part of the record. You will be each recognized for a 5-
minute summary of your testimony.
I would like to go ahead now and introduce our panel. We
have four panelists here today.
First, we have Ms. Beth Deisher, who is in her 26th year as
editor of Coin World, the leading publication of collectible
coins. She is author of, ``Making the Grade: A Grading Guide to
the Top 50 Most Widely Collected U.S. Coins.'' Ms. Deisher is
often interviewed by the media as a coin collector
spokesperson.
We have, also, Mr. Terence Hanlon, president of Dillon Gage
Metals Division, located in Dallas, Texas, one of the largest
metals dealers in the United States and an authorized purchaser
of the U.S. Mint. A leading expert on precious metals and gold
coins, Mr. Hanlon has worked closely with the world's major
mints and is called upon by gold and silver councils for market
and product evaluations.
We also have Mr. Ross Hansen here today. He is the founder
and CEO of Northwest Territorial Mint, the largest private mint
in North America and an authorized retailer of U.S. Mint
bullion coins. Mr. Hansen has been in the precious metals
business for 35 years, and in 2009, acquired the Medallic Art
Company, a minting facility that used to produce silver blanks
for the U.S. Mint.
Mr. Raymond Nessim is CEO of Manfra, Tordella & Brookes
Company, a precious metal wholesale distributor and authorized
purchaser of the U.S. Mint and an official distributor for
government mints around the world. Since the 1960s, Mr. Nessim
has held positions with various firms managing and directing
precious metal investment.
Once again I would like to welcome the panel, and we will
proceed to the first witness, Ms. Deisher.
STATEMENT OF BETH DEISHER, EDITOR, COIN WORLD MAGAZINE
Ms. Deisher. Thank you, Mr. Chairman. I would like to thank
you and the subcommittee for inviting me to testify here today.
During my career, I have been privileged to chronicle the
U.S. Mint bullion coin programs from their origin in the
research and recommendations of the Gold Commission in 1982; to
the passage of legislation authorizing the American Eagle gold
and silver bullion coins in 1985; to the gold bullion coin
first-strike ceremony at West Point on September 8, 1986; and
then through the twists and turns of the ensuing 25 years.
Since Coin World's largest constituency is comprised of
collectors, my testimony will articulate the view of
collectors, who often are also investors. The quality of the
silver, gold, and platinum bullion coins produced by the U.S.
Mint is exceptional. However, the marketing of these coins is
subpar and often disruptive to the marketplace.
Most of the Mint's problems in marketing bullion coins are
rooted in an ongoing failure to understand who its customers
are and why they purchase the bullion coins. In my written
testimony, I have cited a number of problems. In this short
timeframe, I would like to emphasize solving those problems and
making the bullion coin programs better.
These recommendations include: The U.S. Mint should avoid
purposely creating rarities. The U.S. Mint should spend time
and resources to better acquaint its marketing staff with its
various customer constituencies for bullion coin products.
The U.S. Mint should better inform its customers as to when
its coin products are going to be available in the marketplace.
The U.S. Mint should mint to demand by allowing a certain
number of days for collector versions of bullion coin products
to be purchased and/or ordered.
The U.S. Mint should increase bandwidth for its Web site to
facilitate the handling of high-traffic ordering periods. The
U.S. Mint should secure more planchet suppliers and better plan
procurement and manufacturing so as to avoid disrupting
profitable and popular coin programs.
The U.S. Mint should exercise care in scheduling bullion
coin sales so they are more evenly paced throughout the year
and not dump into the marketplace near the end of the calendar
year. The U.S. Mint should take a more active role in providing
the public with consumer alerts regarding any of its products
that might be subject to questionable marketing practices in
the secondary market.
The U.S. Mint should place mint marks on all of its bullion
coins to identify the mint of manufacture. Such marks would
preclude misrepresentation and possible fraudulent practices in
the marketplace. We will also recommend that the U.S. Mint
create a standard protective capsule option for housing all of
its collector version bullion coins.
Thank you again for the opportunity to testify, and I would
welcome any questions that you may have.
[The prepared statement of Ms. Deisher can be found on page
22 of the appendix.]
Chairman Paul. Thank you very much.
And we will go on to Mr. Terence Hanlon. Please proceed.
STATEMENT OF TERENCE F. HANLON, PRESIDENT, DILLON GAGE METALS
Mr. Hanlon. Chairman Paul, Ranking Member Clay, and members
of the subcommittee, I would like to thank the subcommittee for
the opportunity to appear before it today to discuss the United
States Mint's bullion coin program. It seems appropriate for
Congress to take stock of this important program at this time,
as 2011 marks the 25th anniversary of the introduction of the
American Eagle bullion coins.
Congress created the world's most successful bullion coin
program with its passage in 1985 of the Statue of Liberty-Ellis
Island Commemorative Coin Act and Gold Bullion Coin Act of
1985, which authorized, respectively, the American Eagle silver
and gold bullion coins. Since the product launched in 1986, the
coins have become the dominant bullion coins in the global
market for physical bullion coin investments.
Dillon Gage Metals is one of the largest precious metals
dealers in the United States. Our Dallas-based firm is proud of
its affiliation with the United States Mint, as a key
distributor of its American Eagle gold, silver, and platinum
bullion coins. We look forward to the introduction, hopefully
later this year, of a palladium coin to the program as a result
of Congress' passage last December of the American Eagle
Palladium Bullion Coin Act of 2010.
Over the past 25 years, the Mint has produced bullion coins
of exceptional beauty and quality. Their marketing team has
built a strong brand for the Mint's bullion coin line of
products which are recognized and desired the world over, and
has established an unrivaled distribution network.
The Mint is to be congratulated on these accomplishments.
This is an extraordinary time for the global precious metals
market as demand for these metals climbs and prices are at or
near record highs. This demand can be traced back to the
international financial crisis that began in 2007, and was
further fueled by economic uncertainty, jittery equity markets,
and the looming threat of inflation.
Many investors in physical precious metals products prefer
the size and convenience that coins offer, as well as the
imprimatur that the national Mint provides. Overwhelmingly,
investors choose the American Eagle bullion coins, and they do
so for three key reasons: first, the coins weight, content, and
purity are guaranteed by the U.S. Mint and the U.S. Government;
second, there is a liquid market for these products because of
an established network of authorized dealers that ensure a two-
way market; and third, the exceptional beauty and quality of
the coins make them desirable.
As a result, at times the Mint has exceptional demand for
its gold and silver products, but it has at times been unable
to keep pace with the demand due to an insufficient supply of
coin blanks. This has led to disappointed customers and
resulted in market share losses to other Mints' bullion
products.
The Mint has taken steps to address its supply difficulties
by adding additional capacity, but it still struggles to meet
demand, particularly for the Silver Eagle bullion coins.
An adequate supply of blanks caused the Mint to forego
production in 2009--correction, an inadequate supply of proof
versions of the American Eagle gold and silver coins because of
a requirement that gave priority to the production of bullion
coins over proof collector coins. Fortunately, Congress
addressed that problem with its passage of the Coin
Modernization, Oversight, and Continuity Act of 2010, and
provided the Mint the authority to produce collector
uncirculated and proof American Eagles even in times of
unprecedented demand for the bullion versions.
The Mint also experienced problems with its rollout late
last year of the America the Beautiful silver bullion coins.
The problem highlighted weaknesses in the communication between
the Mint and its authorized purchasers and the broader retail
dealer community that the Mint relies upon to sell its products
to consumers.
The Mint should be encouraged to work more closely with its
distributors and to have regular dialogue with them. In doing
so, it will help the Mint to better gauge the market conditions
for their products by hearing firsthand from those making the
markets for them.
The anticipated introduction of a palladium American Eagle
coin this year will bring a new dimension to the Mint's bullion
offerings. It will offer investors an attractive price point in
relation to silver, gold, and platinum, with different supply-
demand factors for the material.
I believe investors will welcome the Mint's resumption of
the production of the platinum Eagle this year, which the Mint
halted at the end of 2008. Additionally, it would be fitting to
mark the 25th anniversary of the American Eagle program with
production of a four-coin collector set comprised of a gold,
silver, platinum, and palladium Eagle coin.
Congress could give a further competitive edge to the
American Eagle bullion products by adjusting the capital gains
tax treatment on these investments to make them on par with
securities. The 1981 passage of the Economic Recovery Tax Act
created a category of collectibles within the Internal Revenue
Code, which includes precious metals.
This change in the Tax Code caused precious metals
investments to be taxed at a different rate than that of
investments in equities. As a result, current tax law imposes a
maximum rate of 28 percent on long-term gains on precious
metals bullion investments rather than the maximum 15 percent
levied on securities and mutual funds. By lowering the rate,
Congress could substantially boost the market potential for the
American Eagles.
Again, I want to thank the subcommittee for the opportunity
to be before it today. I would be pleased to answer any
questions you may have.
[The prepared statement of Mr. Hanlon can be found on page
28 of the appendix.]
Chairman Paul. Thank you, Mr. Hanlon.
We will go on to Mr. Ross Hansen now.
STATEMENT OF ROSS HANSEN, FOUNDER AND CEO, NORTHWEST
TERRITORIAL MINT
Mr. Hansen. Thank you.
Chairman Paul, Ranking Member Clay, and members of the
committee, my name is Ross Hansen, and I am founder and CEO of
Northwest Territorial Mint. I have personally been in the
precious metals business industry for 35 years, and I founded
Northwest Territorial Mint in 1984 as a full-service integrated
Mint.
We are the largest non-governmental mint in North America,
and we not only produce our own brand of bullion products but
we are also a retailer of a number of different governmental
bullion products, including being an authorized retailer of the
United States Mint bullion coins.
Two years ago, I acquired Medallic Art Company, which was,
at one time, a primary producer of silver blanks for the U.S.
Mint. And in full disclosure, my company makes a number of
challenge coins for all levels of military, many government
agencies, including numerous Members of Congress. Because of my
experience in the private sector, I have been asked to testify
before this committee regarding the bullion coin program of the
U.S. Mint.
As you may know, the U.S. Mint began its program in 1986,
but it has only been in the last 3 years that demand for the
silver American Eagle bullion coins has exploded to
unprecedented levels. Many social and economic factors have
contributed to this dramatic increase in demand, not the least
of which is the public's perception of an imploding U.S.
dollar.
In recent years, the U.S. Mint has been often been unable
to meet the increasing demand for its bullion products. The
frequent shortage of these products has led to the following
problems: one, the premium charged by the authorized U.S. Mint
distributors have fluctuated wildly; two, sales have been lost,
which decreases the amount of revenue to the U.S. Mint; three,
the bullion programs of foreign governments have been allowed
to penetrate into the U.S. market; and four, the production
problems have created a widely held negative perception of the
U.S. Mint.
The cause of the Mint's inability to make enough bullion
products to satisfy demand can be traced directly to its supply
chain, specifically its supplies of silver blanks. For example,
up until recently the United States Mint was using a single
source for its silver blanks. This single source had known
limitations in its production capacity and could not expand its
production to meet the Mint's needs.
Rather than working to develop a domestic pool of vendors
for these raw materials, the U.S. Mint has contracted with the
Perth Mint in Australia--half a world away--to make up the
shortage. Any business would recognize that this adds to the
cost of the material and transportation, and significantly
increases the length of delivery.
I am not here today to merely point out the obvious
shortcomings of a program for which I have a high regard.
Instead, I would like to see the American Eagle bullion program
continue to grow and succeed.
For this to happen, I offer the following solutions for
your consideration: One, the U.S. Mint should create an
industry advisory group comprised of experienced minting
industry professionals who are intimately familiar with the
material and processes employed by both government and private
mints. This group should include suppliers of both the
equipment and raw materials that are used by the industry. This
group would be distinct from an existing advisory group that
deals with coin design issues; the group I am proposing would
help with coin production issues.
Two, the U.S. Mint should engage in an aggressive vendor
development program to assure that it has multiple domestic
suppliers to meet the Mint's growing needs. Three, as part of
the vendor selection the U.S. Mint should ensure that its
vendors have an elastic capacity, that is, they both have the
ability to expand production and supply blanks as needed. Four,
the U.S. Mint should maintain a larger inventory of bullion
blanks and finished coins in order to better respond to surges
in demand for its product.
And five, the U.S. Mint needs a change in attitude. They
often have displayed an attitude, which used to be attributed
to the phone company, of, ``we don't care--we don't have to.''
Their attitude towards vendors and authorized purchasers is
often described as surly and arrogant.
It is my opinion that these recommendations, if
implemented, could help to make a good program into an
excellent one that would fill its congressional mandate to
produce high-quality bullion products in sufficient quantities
to meet the demands of an ever-changing market.
Thank you for letting me share my thoughts with you.
[The prepared statement of Mr. Hansen can be found on page
30 of the appendix.]
Chairman Paul. I thank the gentleman.
We will now go to Mr. Nessim.
STATEMENT OF RAYMOND NESSIM, CHIEF EXECUTIVE OFFICER, MANFRA,
TORDELLA & BROOKES, INC.
Mr. Nessim. Mr. Chairman, members of the committee, the
subject matter being bullion coin programs of the United States
with a question, can they be improved, the answer to the
question will always be yes, they can be improved. Established
measurable goals can always be improved by means of flexibility
and transparency.
Silver Eagles recent short-term supply probably is caused
by domestic fabrication capacity of silver blanks. This issue
may be addressed by extending some flexibility to U.S. blank
fabricators in order to help them invest in additional capital
equipment for increased capacity, maybe flexibility simply in
the form of a minimum quantity order guarantee per annum for a
certain period of time.
With regard to the America the Beautiful silver coins, the
issue was not that of distribution but rather that of supply.
The United States Mint has effectively built up great
anticipation for the new 2010 silver America the Beautiful set.
Expectations were that the Mint would mint sufficient
quantities to satisfy potential public demand. Instead, the
Mint announced only in December of 2010 that they were able to
fabricate only 33,000 sets.
As wholesale distributors, the day we were notified of our
allocation we proceeded to sell part of our allocation to
several retail dealers, as we normally do. Later that same day,
or maybe the following day, we were informed by the Mint that
allocations were cancelled and that they will relaunch, and
accept orders on December 10th.
The smaller-than-expected mintage prompted some retail
dealers to offer these coins on their Web sites to the retail
public at very high prices. We had to cancel our sales
agreements, which placed us in a very embarrassing predicament.
To protect the U.S. public from potential price gouging,
the U.S. Mint issued new directives on December 9, 2010, to the
A.P.s requiring them to: make available for sale directly to
the retail public all their allocations; limit profit margin to
no higher than 10 percent; enforce a limit on coin design and
sales for each household; and not sell any such coins to either
their own company officers or employees.
Despite the problems which this has caused, we consider, in
our opinion, that the Mint has done the right thing and made
the right decision. These directives created three problems for
us, namely: one, the risk of being accused of price fixing;
two, not being able to hedge the silver content of our
purchase, which is our norm, consequently being left exposed to
price risk decline; and three, as wholesale distributors we
were not adequately equipped at the time to sell one coin of
each design for each household.
Under the circumstances, the Mint acted promptly,
decisively, and did what it had to do to counteract delayed
production and limited mintage.
If there are any lessons to be learned from this experience
with reference to, ``can they be improved,'' maybe providing
A.P.s with reasonable price notice change or mintage problems;
minimizing surprises by means of regular, open, transparent
communications with the A.P.s regarding marketing plans,
fabrication, or minting obstacles, or any other difficulties;
and allowing the Mint more flexibility by lifting some
legislative restrictions, allowing them to operate a little bit
more like a commercial entity.
In conclusion, and in our opinion, the current middle
management of the Mint, be it bullion, procurement, precious
metals, contracting, production, or manufacturing consists of
very experienced, qualified, and dedicated individuals. What
appears to be void in our experience is a senior chief
executive with sufficient authority to act and report to a
political appointee and to a board of directors comprised of a
cross section of specialists with commercial experience, U.S.
blank fabricators, and U.S. authorized purchasers.
Thank you.
[The prepared statement of Mr. Nessim can be found on page
34 of the appendix.]
Chairman Paul. I thank the panel.
And I will now yield myself 5 minutes for questions.
First, I would like to mention that one of the reasons I
think we are here today and we are concerned, is because we
have a shortage of coins and there is a high demand, and the
Mint hasn't been able to keep up. That seems to be the major
problem.
And then the questions raised are how things are
distributed and how things are managed, and what is the
responsibility of the Mint? But in many ways, what we are
talking about here is a reflection of what we are doing to our
money. This shortage is a consequence of the debasement of a
currency.
Of course, there was a time when there was a fixed exchange
rate between the paper and the coinage when the coins had
actual value, gold or silver. And in the 1930s--in 1933, of
course, there was a devaluation of major proportions and it
went from--a dollar went from one-twentieth of an ounce of gold
to one-thirty-fifth of an ounce of gold, and then gold was made
illegal and it was fixed for a long, long time.
In the 1970s, we had two fixed devaluations: one, it went
one-thirty-fifth of an ounce to one-thirty-eighth of an ounce
of gold; and then it was refined 2 years later in 1973 to one-
forty-second of an ounce of gold. And then after that, the
debasement of the currencies went to the marketplace as gold
was legalized.
So we have had steady debasement of the currency, and now,
as some of you have already mentioned, the economy has a lot to
do with--people are worried and concerned about how they
preserve their wealth. So there has been a high demand for
silver and gold to the point where now there are shortages.
The problem is a technical problem on how to deal with
this, but ultimately, if you had a sound currency, this would
be a non-event; it would be a non-problem. But right now, when
you think about the debasement of the currency, it has been
horrendous. One-twentieth of an ounce of gold to one-forty-
second of an ounce of gold. That is a huge debasement of our
currency, and people are struggling and just wondering, what do
you do when a government does this to its money?
But anyway, I would like to see it facilitated, that people
can handle--help take care of themselves because before 1976,
it was illegal to do this, to actually buy coins and buy gold
coins, and you went to jail if you bought a gold coin.
But I do want to ask a general question to the panel: If
you would, I know you have touched on this already, but just if
you could briefly explain to us the distribution network--how
does it work from the time the Mint does something and until I
can go get a coin in my pocket? Would one of you volunteer and
describe to me exactly how that works?
Mr. Hanlon?
Mr. Hanlon. Yes, I would be happy to.
The Mint has authorized purchasers, of which we are one. So
the product comes from the Mint to us, as an authorized
purchaser, and we have the responsibility of making a two-way
market, both providing that product to dealers who are
providing the product directly to the retail customer. And as
well, we have a responsibility to make a buy-back that is
reasonable so the spread between the bid and the ask is a
reasonable number, a close number so it also maintains a liquid
market.
So it takes three steps. It comes to the authorized
purchaser. We then distribute to the dealer--sometimes a
wholesaler who will distribute it one more time.
But normally, we are selling to the dealer who is providing
that product to the customer. That ranges from coin dealers,
banks, brokerage houses, pawn shops. It is a fairly liquid
market at this point.
Chairman Paul. Is there a buy-back arrangement with the
Mint, or once you buy them, they are yours?
Mr. Hanlon. No. The Mint strictly sells--
Chairman Paul. Right.
Mr. Hanlon. --they do not buy back.
Chairman Paul. Okay. Another quick question: Right now I
understand that I can't go to the Mint and buy bullion coins.
Would there be anything wrong with that?
Mr. Hanlon. The Mint is not capable of handling that. First
of all, they can't handle a two-way market because they would
have to hedge their position, which they have absolutely no
experience or knowledge in.
It would be overwhelming, actually, for the Mint to take
that position. The spreads would be too wide if they did get
involved in it.
Yes, it would be wrong.
Chairman Paul. But they still sell proof sets. Is that
correct--the Mint?
Mr. Hanlon. The Mint still sells--
Chairman Paul. To individuals.
Mr. Hanlon. --numismatic products to individuals, yes.
Chairman Paul. Okay. My time has expired.
I yield to the ranking member, Mr. Clay.
Mr. Clay. Thank you, Mr. Chairman.
Ms. Deisher, in your December 20, 2010, editorial in Coin
World, you called on Chairman Paul and members of this
subcommittee to review the Mint's handling of the five-ounce
silver bullion coin program. In that editorial you noted that
the 2010 production numbers were significantly lower than the
net worth that authorized purchasers had anticipated.
You wrote that such low mintages will produce a speculating
frenzy smacking of contrived rarity, and it is incumbent upon
the U.S. Mint to produce sufficient bullion coinage to satisfy
demand. So I am sensitive to the fact that the U.S. Mint fell
short in that respect.
However, I was pleased to see in Mr. Nessim's written
testimony that in his view, the U.S. Mint took appropriate
mitigatory actions to address the very speculating frenzy you
referred to. While I would hope we can find a way for the U.S.
Mint to address the supply issues, I am pleased that the Mint
took action to protect the U.S. public from potential price
gouging, which Mr. Nessim described as the right direction.
I would also welcome any suggestions from the witnesses as
to how we can ensure that the Mint is able to supply investor
and collector demand.
Finally, in fairness to the U.S. Mint, I would like to ask
for unanimous consent to enter into the record an op-ed from
former U.S. Mint Director Ed Moy that gives the U.S. Mint's
perspective on this--
Chairman Paul. Without objection, it is so ordered.
Mr. Clay. Thank you.
Ms. Deisher, in your written testimony you recommend that
the U.S. Mint should take a more active role in providing the
public with consumer alerts regarding any of its products that
may be subject to questionable marketing practices in the
marketplace. Can you give me an example of the type of
questionable marketing you refer to and how you think the U.S.
Mint should address it?
Ms. Deisher. One of the ongoing problems that we have seen
is the secondary market making products of what they call
first-strikes. The U.S. Mint has said they do not keep track of
the first coin struck. What they do is put tracking numbers and
information on packaging slips, and these go to the grading
services, and the grading services are looking at the low
numbers saying, ``Aha, this is the first coin struck.''
In the collector market, that is the magic thing, to have a
first coin struck. What we are seeing in the market--and you
see it on the cable television programs all the time--they are
asking huge premiums and saying, ``These are the first coins
struck,'' when in fact, they are not.
The Mint issued a consumer alert, one in 2006. This
continues to be a problem. In fact, there was a civil suit
against one of the grading services in Florida and that company
settled out of court and paid quite a bit of money.
But other services continue to do this and many people pay
huge premiums for something that is not. We would like to see
the Mint be more proactive and make the public aware that there
is no way that they know if the coin is the first one struck or
not. This is one of the areas that we feel the Mint could be
much more proactive.
Mr. Clay. I am sorry.
What is your opinion on limiting the newest coin to one
household--to one purchase per household? Is that effective,
or--
Ms. Deisher. What it does is encourage speculation. For
instance, in the America the Beautiful, they limited the
bullion product to 33,000.
This is a pattern we have seen with virtually every new
product. They will have some type of limitation because the
market has built up a great enthusiasm. Whether it is a
production problem or whatever, there is a limited quantity.
And therefore, speculators go in and only if you have one
per household, but I can assure you, probably on the Mint's
mailing list and some of these people who were told to sell
them like that, the dog in the house had an address, the cat in
the house, and every cousin in town had an address. There are
ways to get around that. These artificial, one-per-household
things don't work.
So the solution is to work ahead of time to understand what
market demand could be. I have to tell you that we follow
virtually every world mint that produces coins. We don't see
this problem in any other mint.
Mr. Clay. Thank you.
Thank you.
Chairman Paul. I yield 5 minutes to Mr. Luetkemeyer.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
Mr. Hansen, I am just kind of curious: Can you tell me just
how volatile the market is, and if we oversupply it, is that
going to have an effect on it? Can we oversupply it based on
demand? Can you just give us a little educational background on
it?
Mr. Hansen. On some of the collector coins, yes, it can be
oversupplied. And we have seen that.
On the bullion market, the bullion market is a very
volatile market. All of us dealers can attest that it depends
on what is happening in the financial markets. Our sales can
fluctuate wildly.
But if the U.S. Mint carries a larger inventory, it can
help with some of the supply shock.
Mr. Luetkemeyer. Who would bear the cost of that increased
supply or inventory?
Mr. Hansen. The U.S. Mint is actually quite profitable when
it comes to making their bullion products. And if there was any
additional cost, it would be quickly made up by the increase in
profits.
Mr. Luetkemeyer. So they just pass the cost on, is what you
are saying?
Mr. Hansen. Right. The U.S. Mint, in my best estimate,
loses about a--about a third of their sales are lost because
they can't supply to demand. And the small increase in
production would give substantially more sales--
Mr. Luetkemeyer. Okay.
Mr. Hansen. --which would then provide the profits to
afford that.
Mr. Luetkemeyer. Okay.
Mr. Hanlon, in your testimony you talk about perhaps
changing the tax rate from 28 percent on collectibles, which
include precious metals, down to 15 percent, which is there for
the securities and mutual funds. Can you tell me, how much
would this increase demand? How much kind of a cost would this
be to the government? Tell me what you think would happen here
if we did this.
Mr. Hanlon. As far as the Mint is concerned, it would
benefit greatly because there are multiple people who would
love to purchase precious metals as an alternative investment
to standard securities, so it is--
Mr. Luetkemeyer. So if you did this perhaps would the
demand for the product go up 10 percent, 40 percent?
Mr. Hanlon. In today's conditions, I would say 30 percent
to 50 percent would be very realistic.
Mr. Luetkemeyer. Okay. That begs the question, then,
because one of the problems we have right now is that obviously
the Mint can't keep up with the demand as it is, so how would
it keep up with the demand in your scenario, if you increased
the tax benefits?
Mr. Hanlon. That would include all the precious metals,
specifically gold and silver. But platinum and palladium have
gained a lot of attention because of their continued liquidity
in the market. The fact that the U.S. Mint offers any product
makes it that much more popular, makes it that much more
liquid.
But if you take the ETFs--the exchange traded funds--for
instance, and you see the amount of money that has been
invested in that as an alternative investment to securities, it
is a massive number. That number in itself, I believe, would be
doubled as well if the capital gains tax benefit were applied
to that, which it should be. It is ludicrous, actually, that it
is not.
Mr. Luetkemeyer. Okay.
Mr. Nessim, very quickly, in your testimony you indicated
that the Mint, whenever they are selling the bullion to
authorized purchasers, they limit your profit margin to 10
percent. Is that correct?
Mr. Nessim. No. This was only applicable to the America the
Beautiful silver five-ounce coins.
Mr. Luetkemeyer. Okay. But they are limiting your profit on
that particular issue?
Mr. Nessim. Yes, correct.
Mr. Luetkemeyer. But the other issues, other coins that
they Mint, there is no limit on the profit?
Mr. Nessim. No. They are limiting the profit on the America
the Beautiful simply because we are requested to sell directly
to the public, which--
Mr. Luetkemeyer. Okay.
Mr. Nessim. --they never do on the other bullion coins.
Mr. Luetkemeyer. Very good.
I am about running out of time here, but I just have one
quick question: How does our Mint activities and our coinage
compare to other foreign countries? Apparently, there are other
foreign mints that you are competing against, or working with,
or selling other products. Can you give us a gauge on that?
Mr. Nessim. Yes, they are excellent. They produce more than
any other mint. The quality is excellent. The other mints
produce a very good quality, but the U.S. Mint is by far the
largest fabricator of coins.
Mr. Luetkemeyer. Okay. Thank you.
I see my time is about up. Thank you, Mr. Chairman.
Chairman Paul. Thank you.
I yield 5 minutes to Mr. Green, from Texas.
Mr. Green. Thank you, Mr. Chairman.
I thank the witnesses for appearing.
Also, I thank the ranking member for his great work in
helping us with these issues.
Members and witnesses, excuse me. Let me ask a question
about the platinum blanks and the half-dollar silver proof
blanks. Is it true that the only manufacturer for these
products is in Australia?
Mr. Hansen. I can best address that--
Mr. Green. Yes, sir.
Mr. Hansen. --as the only manufacturer here. No, there are
a number of manufacturers that could be--it could be done here
in the United States. The U.S. Mint just hasn't sought them
out.
Mr. Green. If I may, let me--thank you for that, but rather
than get to that point--and we may get there--the question
really has to do with what is currently the circumstance. Is it
currently the circumstance that this is the case?
Mr. Hansen. I believe that is correct.
Mr. Green. Only Australia. And I think you were about to
indicate that it could be done within the United States,
notwithstanding the fact that it is not being done within the
United States. Is this correct?
Mr. Hansen. That is correct, sir.
Mr. Green. Okay. Now, is it true that until about 1981, we
did have a presence in the marketplace with these products?
Does anybody happen to remember about when it occurred?
Mr. Hansen. Are you saying the U.S. Mint was producing its
own blanks?
Mr. Green. That we had the blanks for the platinum blanks
and the half-dollar silver proof blanks. Isn't it about 1981
when we used to do this?
Yes, ma'am?
Ms. Deisher. The American Eagle bullion coin program was
not created until 1986, and silver was taken out of American
circulated coinage in 1965. So the U.S. Mint's refineries in
silver planchet production really ended in the 1960s.
It was not until the bullion program was created, actually
in December of 1985 and they--it took them a year to gear up.
But no precious metals coinage had been produced by the U.S.
Mint, or struck by the U.S. Mint, during that interim.
Mr. Green. How do you account for the absence of a U.S.
company in the marketplace with these blanks?
Mr. Hanlon. Could I help address that, Mr. Green?
Mr. Green. If I may, the lady may have an opinion that I am
interested in. I will give each of you an opportunity. I would
like to hear the lady's opinion.
Ms. Deisher. I am not sure I understand your question. Are
you referring to the bullion blanks--
Mr. Green. Right now, we have an Australian company that
produces the platinum blanks and the half-dollar silver proof
blanks.
Ms. Deisher. Yes.
Mr. Green. We don't have an American company that is doing
it.
Ms. Deisher. We are aware that there are American companies
capable of doing it, but--
Mr. Green. I understand, but--
Ms. Deisher. --we do not know--
Mr. Green. I understand. Okay. If your answer is that you
don't know, I accept it.
Ms. Deisher. We have asked the United States Mint and we
have not gotten a clear answer.
Mr. Green. So you don't have an opinion as to why?
Ms. Deisher. I do not.
Mr. Green. Okay.
Let's move to the question now. It really is, why is it
that it is not being done in the United States? I understand we
have the capacity and we are capable, but tell me why.
Yes, sir?
Mr. Nessim. May I answer?
Mr. Green. No, the gentleman who is next in line.
Mr. Nessim. Oh, I am sorry.
Mr. Green. I am going down the line. I am sorry.
Mr. Hanlon. Ray and I feel--from the same perspective, and
I believe that the answer is that the specifications for
actually making the blanks for platinum coins or the silver or
the gold are fairly stringent, and that creates an issue,
according to the Mint, for those who are willing to meet those
specifications in exchange for the profit that is made on that
particular product.
Mr. Green. Because the yellow light is on, let me go to the
next person.
Can you give me a brief response there? You were going to
give one earlier.
Mr. Hansen. As the only manufacturer here, I can just tell
you simply, the U.S. Mint has not been responsive to requests
from my company or others to do the blanks. They don't develop
their vendors within the United States.
Mr. Green. There are some who contend that this goes back
to budget cuts in 1981. Is there any connection to the budget
cuts in 1981? Does anybody see any connection?
Mr. Hansen. No, sir.
Mr. Green. Okay.
The next gentleman, please?
Mr. Nessim. I believe it is a matter of economics. Our
parent company is a fabricator of blanks, and we have proposed
and offered and sent samples to the U.S. Mint of our blanks.
Their specs are very high and their prices are very
advantageous, meaning they would shop around and get the best
possible price, and from an economic standpoint, if it makes
more sense to bring it in from Australia or anywhere else as
compared to manufacturing them here it should be done.
Chairman Paul. Your time has expired.
Mr. Green. My time is expired. Thank you.
Chairman Paul. I yield 5 minutes to Mr. Lucas, from
Oklahoma.
Mr. Lucas. Thank you, Mr. Chairman.
Ms. Deisher, let's run and gun here a little bit in this 5-
minute timeline we have. Would you explain to the committee in
the briefest of terms your comments about why mint marks are
important not just to collector coins but bullion coins, and
why for 2,000 years mint marks have been important?
Ms. Deisher. Yes, sir. It shows the mint of origin, and
sometimes there are unequal productions at the facilities so it
could possibly create a rarity, but the reason I went to this,
especially with the new coin programs coming on and the
additional silver, is the problem that I identified on the
packaging and the likelihood that secondary market could abuse
this also. So it is very important and it was historically the
case that the U.S. Mint always identify--or pretty much
identified, especially in its precious metals, its gold and
silver coinage--
Mr. Lucas. As have most mints for 2,000 years.
Ms. Deisher. Yes.
Mr. Lucas. Second question: The Mint's Web site. You
comment about the bandwidth. I assume that means the ability
for people in these rushed periods to get online.
From your investigations as a reporter, what kind of
capacity do you think the Mint has and what kind of demand, at
key points, have they had? What is the ratio in their present
configuration?
Ms. Deisher. It is my understanding they are working to
increase that, but I can tell you, every time there is a new
collector product offered, and you go to the Web site, people
sit there for hours trying to get in and you can't. And then
you call on the phone and you are backed up.
I don't know what their peak capacities are, but what
happens--I know of instances where people will pay people
sitting at home to sit there for hours and hours and hours to
try to get in to buy products. And this is ongoing. This has
been happening--I remember in 2007, and it was horrendous for
the First Spouse programs.
Mr. Lucas. So it is not just a one-time anomaly.
Ms. Deisher. No.
Mr. Lucas. It is a regular problem in peak order periods.
Would you touch on the effect--the entire panel has
discussed this 33,000 coin issue and starting and stopping it.
From your perspective, not only as a reporter but in a business
that sells advertising and watches these various enterprises,
could you give us a little insight in the economic impact that
this start-stop-sputter situation in this particular case had
on real world businesses?
Ms. Deisher. I would like to submit for the record comments
of one of our advertisers, Mr. Mike Folgens, and he very
clearly talks about how you have to place advertising months in
advance. He lost several hundred thousand dollars in the
anticipation it would be business as usual trying to get
advertising placed in our publication and others.
When the Mint Director had been talking about how they
expected 100,000 of these sets to be produced--and this was in
July--it wasn't until December that we learned there were going
to be 33,000. Of course, that created a frenzy in the market.
They have another 27,000 blanks that they have decided to
make into a collector product. This same thing is going to
happen in probably 6 weeks and it will be actually a greater
problem because of the low mintages.
These kinds of things--from a collector perspective, if you
can't start at the beginning of a program, you are discouraged
from ever participating in it again. It is a pattern that we
have seen over and over where somehow there is a limited
mintage set up for the beginning of a program, there is wild
speculation, and then people just get discouraged and stop
buying the product on the collector side.
Mr. Lucas. Could you touch for a moment on the Mint model?
And then I have a question for the rest of the panel.
Historically, in 1792 the Mint was set up. You brought your
precious metals in, you paid a small fee, and they turned it
into the appropriate coins of your request. And then we went
away from--I guess the term would be free coinage--to a process
where the Mint was a government enterprise stamping out things,
meeting demand as requested by the Treasury.
Now, in recent years we have changed that business model
again to a more business-oriented model, correct?
Ms. Deisher. Right.
Mr. Lucas. Part of the proceeds go into the revolving fund.
Would you offer any observations you might have on how going
from the previous model where whatever they did did not benefit
their operating fund to a model now where the more products
moved there a benefit to the direct--to the Mint's fund itself?
Could you expand on any of that?
Ms. Deisher. Certainly, the model that came into play in
the mid-1990s is much more efficient and I think it gives the
Mint flexibility to plan. Where we see a failure is to plan to
avoid the crisis management type things.
It might need some refinement. It is definitely the kind of
model in today's world.
Mr. Lucas. If the chairman will tolerate me just a little
bit more, the old lament from the 1980s prior was they didn't
want to do anything. Now the lament is because of the different
model, they want to do so many things that the typical
collector might not be able to buy all of the options they
offer. Is that a fair observation from the folks in the
country?
Ms. Deisher. That is a fair observation. When I did an
editorial back about 7 years ago, if you purchased one of
everything the U.S. Mint produced that year, it would have cost
$3,000.
Mr. Lucas. Impossible for most--
Ms. Deisher. We did the same analysis this year and it was
over $10,000, and because they are not producing platinum
that--it would be even higher if they had those. So to be a
complete collector today is--collectors are really priced out.
You have to select a series if you want to be complete. You
can't be a completist today.
Mr. Lucas. I appreciate the chairman's indulgence on time.
Chairman Paul. I thank the gentleman.
And without objection, the statement Ms. Deisher referenced
will be placed into the record.
Ms. Deisher. Thank you, sir.
Chairman Paul. And now, I would like to yield 5 minutes to
the gentlelady from New York, Mrs. Maloney.
Mrs. Maloney. I thank the chairman for yielding and for
holding this hearing.
We certainly want to have high-quality coins produced, but
on the panel, I believe we have only one person from the
private sector, Mr. Hansen, who is working in this area. So I
would like to--and I understand in your testimony you came out
and said things that you thought the qualifications or demands
were too onerous.
So I would like to ask you, what are the factors you would
encourage Congress to consider in creating any future bullion
coin program? You cited ensuring sufficient blank suppliers so
that one coin program's production does not affect the supply
of blanks for another coin program. Are there other
recommendations that you would like to speak to that you
believe would be an improvement on the part of government?
Mr. Hansen. Mrs. Maloney, I believe that the onerous
comment about the blank quality was made by Mr. Nessim, not
myself. But the U.S. Mint does have high standards for their
blanks. We have always met those standards. The standards are
really not that onerous.
The U.S. Mint has a very arbitrary system of accepting
blanks, and in the past when we have supplied blanks to the
U.S. Mint, we never had any problems with quality, but it has
been used as a weapon to kind of limit the suppliers. The U.S.
Mint kind of has it in their mind who they want to supply
blanks.
The problem isn't with the quality issue. The problem is
the U.S. Mint just recognizing that they need more than one
supplier and they just need to open it up. And they should be
made in the United States, not overseas, if we are providing
American jobs.
Mrs. Maloney. Let's do it. Thank you.
Oh, I think I still have some more time.
Chairman Paul. Yes, you do.
Mrs. Maloney. Oh, I have some more time. Okay, great.
Mr. Hansen. And if I could just make one more comment on
it, Medallic Art Company made a substantial investment of many
millions of dollars before I acquired them in getting ready to
supply the blanks for the U.S. Mint, which they had done for
many years, and they were just universally rejected and no
logical reason was ever given. They were just basically told,
``Thank you, but no.''
One reason I acquired the company is because the previous
owner had no market for the products, and if the U.S. Mint had
accepted us as a blank supplier, we wouldn't be sitting here
today. We could supply all the blanks the U.S. Mint would ever
need.
Mrs. Maloney. But then when you got the business, you got
them to accept your blanks, right?
Mr. Hansen. No.
Mrs. Maloney. Really?
Mr. Hansen. In fact, I have had many discussions with the
previous Mint Director, told him I could supply him with
blanks. He just smiled and said, ``Oh, okay,'' and I asked him
if he would like to come out and tour our facilities and there
was just a deadpan response.
Mrs. Maloney. So how many companies are supplying the
blanks now in America?
Mr. Hansen. There is one primary supplier, which is a
company in Coeur d'Alene, Idaho. They recently added a second
one in the United States, which is in Rhode Island. But the two
major suppliers are Idaho, and also the Perth Mint in
Australia.
Mrs. Maloney. Australia?
Mr. Hansen. Australia.
Mrs. Maloney. Why are we giving preference to Australia?
Mr. Hansen. That is a question directed to the U.S. Mint.
Mrs. Maloney. And when they don't--they don't have
competitive bidding? They don't have--they just say no to you?
They just say you can't do it and they don't give you any
reason?
Mr. Hansen. That is correct.
Mrs. Maloney. Mr. Chairman, I think we should inquire why
and see if we can have a competitive bidding to get the best
product at the best price.
And Mr. Nessim, it was your statement that you thought that
the standard was too high, if you want to explain that.
Mr. Nessim. No. It is not too high. It is high, but it
should be high and it is comparable to other major mints.
Mrs. Maloney. Well then, if I could ask you, Mr. Hansen, if
you can't sell your blanks to the U.S. Government, who are you
selling them to?
Mr. Hansen. We have our own line of products and we have
about 250 people who work at the Mint and we make a lot of
products for Congress, too, and the U.S. military. And we have
a very active secondary market. We actually compete with the
U.S. Mint and we also sell their products.
Mrs. Maloney. My time has expired.
Chairman Paul. I thank the gentlelady.
And I will go on to Mr. Schweikert, from Arizona.
Mr. Schweikert. Thank you, Mr. Chairman.
And this one may be a little slightly off topic, but for
those of you who also sell larger numbers of product, out of
curiosity: Do you buy hedges on the cost of your commodities?
That is for--
Mr. Nessim. What is the question again, please?
Mr. Schweikert. Buying a hedge. So let's say you are about
to order--
Mr. Nessim. Yes. We do hedge.
Mr. Hanlon. Yes. Hedging is part of the procedure, the
policy, the business of carrying bullion products, and the
whole purpose of hedging, of course, is that we don't play the
market, we aren't speculating. So it is an additional cost
involved in trading of precious metals, specifically the U.S.
Mint bullion coins, in this case.
Mr. Schweikert. Mr. Chairman, then the second part of the
question is, how do you buy a hedge if you are not completely
sure about how much product you are going to be acquiring?
Mr. Nessim. When we know exactly what we are going to buy
we hedge that exact--
Mr. Schweikert. Okay. So you are hedging actually once you
know what inventory you are going--
Mr. Nessim. Otherwise you cannot hedge, yes.
Mr. Hanlon. Sir, the point of the hedge in the respect of
buying the product is that you buy products to have live so you
can provide immediate delivery. So you do know the number of
ounces that you are purchasing and that is the same number that
you are hedging. In other words, you are taking the opposite
position in the market against your long position and so the
hedge is a number that you always do know.
Mr. Schweikert. Mr. Chairman, part of the question was more
based--I was concerned that you were having a fulfillment issue
of product after time you had already hedged your risk.
Mr. Nessim. My point in my testimony was that we were
informed on the silver five-ounce coins. We were informed of
our allocation on one day and then the following day we were
told that this is cancelled.
Mr. Schweikert. Okay. You beat me back to my notes, so--but
that was an anomaly that happened?
Mr. Nessim. Correct. It never happened before.
Mr. Schweikert. Okay. Is there anything else you would want
someone like me to know about how you do those mechanics?
Mr. Nessim. It is not really significant for that
particular purpose, really. It is our problem of hedging or
underhedging, but it has nothing to do with improving the
Mint's performance, no.
Mr. Schweikert. Okay.
Mr. Chairman, thank you. That was actually the question I
had. I yield back any time I have.
Chairman Paul. Does the gentlelady from New York care for 5
minutes?
Dr. Hayworth. Mr. Chairman, I yield back my time at
present. Thank you, sir.
Chairman Paul. Okay. Thank you.
Mrs. Maloney, would you care to follow up with another
question? If so, I will yield to you.
Mrs. Maloney. Yes, I would.
I was interested, because we are facing a job crisis here
in America; we need to employ Americans. And so I was curious--
although Australia is a wonderful ally, a wonderful country--
why we are doing that.
And I was told that while Gold Corporation in Australia
supplies several different precious metal blanks, they are the
only supplier of platinum blanks and half-dollar silver proof
blanks. So if American companies can't supply what they are
supplying, then there is a reason why they are going there.
So I would like to ask you, Mr. Hansen, why you or other
suppliers here in America are not making that available to the
Mint?
Mr. Hansen. We have offered. We are qualified to make--and
there are a number of manufacturers in the United States that
can make blanks, both platinum blanks and silver blanks.
I asked this question directly of the former Director of
the Mint and he said it was not a priority for them. They said
that this is a global marketplace, and that they source
globally, and really their priority was not to source in the
United States. That was the explanation that was given to me.
Mrs. Maloney. Thank you. I wanted to clarify that.
Thank you.
Chairman Paul. If there are no other questions, this
hearing is adjourned. The Chair notes that some members may
have additional questions for this panel which they may wish to
submit in writing. Without objection, the hearing record will
remain open for 30 days for members to submit written questions
to these witnesses and to place their responses in the record.
[Whereupon, at 11:06 a.m., the hearing was adjourned.]
A P P E N D I X
April 7, 2011
[GRAPHIC] [TIFF OMITTED] T6863.001
[GRAPHIC] [TIFF OMITTED] T6863.002
[GRAPHIC] [TIFF OMITTED] T6863.003
[GRAPHIC] [TIFF OMITTED] T6863.004
[GRAPHIC] [TIFF OMITTED] T6863.005
[GRAPHIC] [TIFF OMITTED] T6863.006
[GRAPHIC] [TIFF OMITTED] T6863.007
[GRAPHIC] [TIFF OMITTED] T6863.008
[GRAPHIC] [TIFF OMITTED] T6863.009
[GRAPHIC] [TIFF OMITTED] T6863.010
[GRAPHIC] [TIFF OMITTED] T6863.011
[GRAPHIC] [TIFF OMITTED] T6863.012
[GRAPHIC] [TIFF OMITTED] T6863.013
[GRAPHIC] [TIFF OMITTED] T6863.014
[GRAPHIC] [TIFF OMITTED] T6863.015
[GRAPHIC] [TIFF OMITTED] T6863.016
[GRAPHIC] [TIFF OMITTED] T6863.017
[GRAPHIC] [TIFF OMITTED] T6863.018
[GRAPHIC] [TIFF OMITTED] T6863.019
[GRAPHIC] [TIFF OMITTED] T6863.020
[GRAPHIC] [TIFF OMITTED] T6863.021
[GRAPHIC] [TIFF OMITTED] T6863.022
[GRAPHIC] [TIFF OMITTED] T6863.023