When the US Mint announced that it would be adding a .9999 gold bullion coin to its line of gold coins, it seemed like a “golden opportunity” for the Mint to capture a big chunk of the 24-karat gold coin market. When legislation was passed requiring the new coin to bear the James Earle Fraser designs that adorned the legendary Buffalo/Indian Head nickels from 1913 to 1938, the future for the new coin looked even brighter.
However, with the release of the new Buffalo gold coin, the Mint’s gold opportunity has become a retail nightmare. While the coin itself is quite striking, has a matte finish and fully captures Fraser’s designs, the packaging makes the coins a nightmare.
Although most of the blame may lie with Congress for attempting to “micromanage” the production and distribution of the coins, the Mint should accept its share of the blame for the choice of packaging, without having considered the retail aspects of the coins. coins. packaging.
Congress mandated that the coins be individually encapsulated to protect them from damage, apparently to avoid problems that have arisen with 1-ounce Gold Maple Leaf coins. Additionally, Congress mandated that the Mint have the coins ready for distribution by the end of June. To meet the deadline, the Mint had to choose a packaging method that was readily available and could accommodate high-volume advance sales.
The Mint chose a semi-rigid Mylar package, five coins horizontally with four coins facing down, making twenty coins on one sheet. With ample space between the coins, a “buffalo sheet” measures twelve inches by sixteen inches. The packaging causes several problems.
Due to the stiffness of Mylar, a sheet cannot be folded into a tall package. Orders of less than twenty coins have to be cut from the sheets so that the coins are packed compactly, which is desired, and expected, for gold bullion coins.
To be sure, the Buffalos’ semi-rigid packaging was meant to provide long-lasting protection. However, Mylar is so stiff that an original sheet of twenty Buffaloes cannot be stored conveniently. A sheet of twenty can be rolled up like a magazine and then tied with rubber bands, but storage would take up a lot of space. While smaller safes can hold hundreds of 1-ounce Gold Eagles because they come in compact tubes, perhaps only sixty or more Gold Buffalos would fill a small safe.
Another problem that has arisen: coins easily come off their protective foils when handled. This means that the coins must be transferred into a tube or individual plastic sleeves, which are so often used for single coin purchases. However, Mylar can be repaired with Scotch tape, hardly an attractive solution.
Due to the problems that have arisen with the packaging, Buffalos will not attract many large bullion buyers but rather collectors, who may only want a few coins. Investors who ordered Buffalos without knowing the packaging were disappointed. With the current packaging, the Mint is unlikely to capture much of the market for .9999 fine bullion coins.
While the Mint may point to strong early sales, new coins almost always enjoy strong early sales. And, with the popular buffalo/indian head design, buffaloes are sure to continue to be a favorite with collectors and gift seekers alike. However, the Buffalos were introduced to go after the .9999 fine gold bullion coin market, where repeat orders are placed by investors. So the test for the Buffalos will come in the next few months when we learn if investors place a second and third order for the Buffalo.
It is the opinion of this 32-year veteran of the gold bullion market that if the US Mint does not make changes to the Buffalo packaging, sales will erode over time and the the Coin will miss out on a golden opportunity to capture a large chunk of the pure gold coin market, which is now dominated by the Royal Canadian Mint’s golden maple leaves.
The solution to the problem is for the Mint to change the packaging as soon as possible, taking into account the likelihood of large investors storing the coins in safe deposit boxes. For investors who do not store in safe deposit boxes, compactness becomes even more important, as the coins need to be easy to hide. The Mint appears to have completely ignored this aspect of the market.
In addition, the Mint must keep in mind that the coins must be handled by bullion dealers who ship the coins to the final investors. Current packaging means that orders of twenty coins or more are shipped in large boxes, which increases shipping costs. Large boxes may also require more trips to the post office. It also increases the cost of handling for orders of less than twenty coins, since they have to be cut from the sheets.
Since Congress mandated that coins be individually encapsulated, the Mint should use hard plastic capsules like those used by the Perth Mint. The encapsulated coins should then be placed ten in a tube, providing compactness for easy storage. That would also make it easier for coin dealers to handle.
To correct the problem, and really go after the .9999 bullion coin market, the Mint must encapsulate the coins individually and place them in tubes of ten. Then ten tubes should be placed in small, sealed, durable boxes. And finally, five small boxes of 100 coins must be placed in a larger box of 500, which is how the Mint ships its best-selling Gold Eagles. Boxes of 500 are popular with large investors, and boxes of 100 would be attractive to medium investors.
Packaging the new Buffalos in this way would make storage and handling easier for both investors and retailers. The Mint needs to think about retail with its packaging, consider how investors store, and think about the bullion dealers handling the new Gold Buffalos to deliver to pure bullion investors.
