(Kitco News) – For decades, the United States Mint did not obtain, nor even request, any documentation confirming the origins of the gold they sourced from suppliers and refiners, all while promoting their most popular coins as minted from 100% newly-mined American gold, according to a recent report from the U.S. Treasury’s investigatory and auditing office.
The Treasury Department’s Office of the Inspector General (OIG) published the audit report OIG-24-027 on May 29, 2024. The report, entitled ‘Bill and Coin Manufacturing: The Mint Needs to Enhance Controls over Gold Acquisitions,’ was the result of nearly a year of investigation, and it uncovered serious lapses, failures, and misrepresentations in the 222-year-old institution’s gold procurement processes.
The OIG “conducts independent audits, investigations and reviews to help the Treasury Department accomplish its mission; improve its programs and operations; promote economy, efficiency and effectiveness; and prevent and detect fraud and abuse.”
But the report’s publication was delayed for over three years due in part to the refusal of the Mint’s senior management to accept its findings, and it took a shakeup at the very top of the institution before the OIG’s recommendations were accepted.
Allegations of terrorist financing and money laundering
The OIG investigation was triggered when a news reporter contacted the U.S. Mint in June of 2019 alleging that the Mint had purchased gold from a supplier refiner which had originally been sourced from illegal mines in Colombia, South America. As the Mint was legally obligated to purchase the vast majority of its gold bullion from U.S. sources, this was a surprising allegation.
But the allegations were far more serious than a lack of proper licensing. “Reportedly, these mines were linked to illicit activities that included terrorist financing and money laundering,” the OIG wrote.
Following their communication with the reporter in the summer of 2019, the Mint’s senior management reached out to the OIG, and the latter began their investigation almost immediately.
“The objectives of our audit were to determine if the Mint received illicit gold from its suppliers and if there were weaknesses in the Mint’s controls over the acquisition of gold bullion,” the OIG wrote. “We conducted field work from June 2019 through November 2019 with subsequent follow-up through April 2020.”
The draft report was ready in August 2020, just over one year after the initial allegations were brought to light. But the report would not see the light of day for nearly four more years.
Domestic law and foreign gold
The U.S. Mint acquires gold for its products under the authorization of two laws, the Gold Bullion Act of 1985 and the Presidential $1 Coin Act of 2005. These laws specify that “the Secretary of the Treasury shall acquire gold for coins issued by purchase of gold mined from natural deposits in the United States, or in a territory or possession of the United States, within one year after the month in which the ore from which it is derived was mined.”
This type of gold is referred to in the report as “newly mined U.S. gold,” and the OIG said that the majority of the bullion coins issued by the Mint are produced under the authority of these two laws. This means that if the Mint were operating to the letter of the law, it would be impossible for them to mint coins from illegal Colombian gold, or legal Colombian gold for that matter, or even older or recycled U.S. bullion.
Beyond these two Acts, the Mint is also bound by many other laws, domestic as well as international, including those often referred to as KYC-AML (know-your-customer and anti-money laundering) which are designed to prevent precious metals from being used and financial tools for criminal purposes. The OIG was keen to determine if these rules and regulations were being followed as well.
“For the purpose of this report, the term responsible sourcing or responsibly sourced means that sufficient due diligence was conducted to provide reasonable assurance about the gold source integrity in complying with local, international, and U.S. laws and not being linked to illicit activities that include money laundering and terrorist financing,” they wrote.
Troubling discoveries
The OIG soon discovered that the Mint did not seem to be adhering to the letter of U.S. law since the passage of the 1985 Bullion Act, and appeared to have abandoned any pretense of even living up to the spirit of its American legal requirements for at least 20 years.
The auditors began uncovering problems at the Mint very quickly, beginning with their initial conversations with senior Mint staff, some of whom misrepresented the institution’s gold procurement practices from the get-go.
The auditors said in the report that they were “initially told by the Mint’s Chief of Procurement that the Mint had not purchased any gold other than newly mined U.S. gold.” The Chief of Procurement also claimed to have documentation to support this assertion dating at least as far back as 2002.
“However, when asked, Mint officials could not provide evidence to support that the Mint had been acquiring newly mined U.S. gold,” the OIG wrote.
What, then, were the criteria governing the Mint’s procurement of gold? If they weren’t buying “newly mined U.S. gold” as required by U.S. law, where was their gold coming from? And how could they know if it was responsibly sourced?
One of the first things the OIG found was that the Mint no longer appeared to be operating under its legally mandated U.S. procurement regime. To meet its responsible sourcing requirements, investigators discovered that for at least 20 years, the Mint had instead been relying on their suppliers being listed on the Good Deliveries List (GDL) of the London Bullion Market Association (LBMA).
Taken at face value, this could only be considered good news to any auditor. “LBMA is the pre-eminent standard-setting body for the global wholesale market for precious metals and provides accreditation to gold refiners which comply with standards for responsible sourcing,” the OIG wrote. “The LBMA GDL is the list of gold and silver refiners whose products are acceptable to be traded on the London bullion market. To be listed on the GDL, refiners must undergo, among other things, stringent checks regarding their history in the market, their financial standing, and their compliance with standards for responsible sourcing and their ability to produce bars that meet the specified standards.”
Indeed, the LBMA maintains the most stringent and exhaustive accreditation and responsible sourcing requirements in the world, and refiners who wish to participate in the market must account for every aspect of their supply chain.
But even in this area, the Mint’s compliance with this standard appears to be very lax and lacking in documentation and rigor.
The OIG discovered that the Mint made no attempt to verify the documentation that the LBMA itself already requires of these refiners, documentation which the suppliers already had on hand. “[T]he Mint did not request or obtain any documentation from gold refiners concerning the origin of the gold or relating to supply chain reviews such as LBMA-required third-party audits and supporting documentation,” they noted. “Mint officials and a Mint gold bullion supplier official told us that they rely solely on the refiners being on LBMA’s GDL to ensure that the gold is responsibly sourced.”
So how did the Mint ensure that their suppliers were fulfilling their Basic Ordering Agreements (BOA) with gold procured exclusively from refiners in good standing on the GDL? “According to Mint officials, the Mint periodically reviews the LBMA website to identify changes in LBMA’s GDL to ensure only gold refiners on the LBMA GDL are included in its BOAs with gold suppliers,” the OIG wrote.
And, over the decades, did their occasional consultation of the LBMA homepage raise suspicion about any refiner, and if so, did Mint officials follow up? “An official we spoke with at LBMA could not recall a request by the Mint for documentation related to a LBMA GDL refinery’s operations or supply chain,” the report noted dryly.
Mined in the USA?
What about their ‘buy (new) American’ requirements? Here again, the OIG discovered another conveniently vague process in place, one that seems to have been designed to ensure that the Mint didn’t know the origins of its gold, enabling it to claim that the gold can’t definitively be proven not to be the “new U.S. gold” they were mandated to purchase.
“When Congress renewed the Mint’s authorization to produce gold coins with the Gold Bullion Act of 1985, Congress specified certain requirements which included, among others, that all gold acquired for the coins originate from gold mined from natural deposits in the United States or its territories,” the OIG noted. “Additionally, the gold acquired must be newly mined gold.”
“Similarly, the Presidential $1 Coin Act of 2005 has similar provisions and requires gold for these coins also be newly mined U.S. gold,” they added.
“Review of the Mint’s fiscal year 2018 sales found that the Mint sold approximately 459 thousand ounces of gold, of which 448 thousand ounces or approximately 98 percent of the gold sold by the Mint through its various coin programs was required to be newly mined U.S. gold,” the auditors noted.
The Treasury’s investigators also asserted in the report that “Mint officials fully recognized that the Mint is legally required to acquire newly mined U.S. gold for the minting of gold coins.”
“According to the Mint’s Senior Counsel, the fundamental purpose of the Mint’s BOAs with its gold bullion suppliers is to purchase newly mined U.S. gold bullion and that the BOA’s technical specifications require gold purchased be “newly mined in the U.S.,” the report stated. “Additionally, in accordance with the BOA, the gold refiner must certify the gold is newly mined U.S. gold and the gold supplier must provide all records to the Mint to determine the gold’s origin upon request.”
But when the OIG reviewed the Mint’s BOAs with its suppliers, they discovered that definitive terms such as “must” and “require” were notably absent, and the stipulations regarding the bullion’s origin had been watered down to nothing.
Auditors found that “while the BOAs clearly identify ‘newly mined U.S. gold’ as an acceptable deliverable to the Mint, the BOAs also provided the gold bullion suppliers authorization to supply ‘other than newly mined U.S. gold’ to the Mint.”
The investigators also found that “there is no distinction made at all to identify between newly mined U.S. gold and other than newly mined U.S. gold in the daily gold pricing quotes sent from the gold bullion suppliers to the Mint despite this being a BOA requirement. Additionally, there was no distinction between these two gold types in either the Mint’s confirmation report sent for daily purchases by the Mint to the gold bullion supplier confirming the amount and price of gold or in the Mint’s accounting or inventory of the gold bullion.”
How, then, did the Mint account for the origins of nearly half a billion dollars’ worth of annual gold purchases? And how could they claim that the coins they marketed and sold to customers for decades were minted from gold newly mined in the United States?
It turns out that auditors from the Mint’s own independent public accounting firm had raised the same concerns to the institution’s senior management in 2018.
“[D]uring the Mint’s previous annual financial audit the question was raised as to how the Mint could ensure gold bullion acquired from Canadian refiners qualified as newly mined U.S. gold,” the OIG noted. “The explanation provided by the Mint’s Chief of Procurement and Senior Attorney was that as long as the gold had been mined in the United States and the refinery was on the LBMA’s GDL that it was acceptable.” It seems, then, that the “U.S. gold” no longer needed to be “new.”
But the relaxing of requirements and redefining of terms didn’t stop there. “Additionally, the Mint officials explained that they defined gold obtained from any approved refinery as newly mined U.S. gold as long the amount of the gold acquired by the Mint from the approved refinery was 100 percent of or less than the total amount of newly mined U.S. gold that the refinery processed during a given year.” So, in effect, none of the gold they purchased was necessarily from the United States at all.
The OIG cited the Mint’s own explanation of how this methodology was implemented in practice.
“Mint officials provided the example of a gold refiner which during a year buys gold from ten different mines, of which only two are U.S. mines,” they wrote. “If the two U.S. mines provide 60,000 ounces of gold to the refiner, then the gold bullion supplier can provide the Mint with up to 60,000 ounces of gold from this refiner during that year.”
“According to Mint officials, the Mint has used this allocation method for the last 30 years, and since the Mint’s implementation of the Gold Bullion Act of 1985,” the report said.
Was Congress complicit?
While neither the Mint nor the OIG cited any legal justification for the institution’s exclusive reliance on LBMA’s GDL for their “responsible sourcing” practices, there appeared to be at least tacit approval from Congress for the Mint’s longstanding method of defining “newly mined U.S. gold.”
The report cited a March 1987 letter from the Mint’s then-director to a congressional inquiry explaining why the Mint did not insist on the ability to trace “new U.S. gold” to specific bars they received from their suppliers. “She stated that the cost of the tracing procedures would likely raise the price of gold above the average world market price, which would result in the Mint not being able to acquire newly mined U.S. gold,” the report stated.
The Mint also cited a 1988 audit report from an earlier version of the OIG which conducted internal audits for the Treasury Department years before the establishment of the independent Treasury OIG that exists today. “The audit found that the Treasury policies and Mint procedures were appropriate and being followed,” they said.
Still, the (current, independent) OIG did not find the reasoning behind this ‘mined in the USA’ methodology very compelling. Neither, apparently, did the Mint. “During our audit, we found the Mint was unable to support its justification for its newly mined U.S. gold equivalency,” they wrote.
More worryingly, the Mint had not kept up with even the superficial level of due diligence they claimed to be performing in the Congressional letters from the late 1980s, which rendered the whole exercise meaningless, even as a fig leaf.
“Despite the clause in the Mint’s BOAs, which mandates its gold bullion suppliers to furnish all records concerning the origin of the gold bullion upon request, we were told by the Mint’s Chief of Procurement that the Mint had not received this information from refineries regarding the sourcing of their gold since prior to 2002,” the OIG said. “Additionally, the gold bullion supplier we spoke with told us that they do not look into the origin of the gold because the refiner would not share that information with them. This makes this clause in the BOAs ultimately ineffective in this regard.”
It also makes it impossible to know whether the allegations that set off the investigation had merit: If the Mint had not received any country-of-origin information from any of its suppliers in 20 years, then the United States Mint’s own gold coins could have contained bullion that was mined illegally, and the Mint’s sales to collectors may well have supported criminal organizations and terrorist groups.
OIG massaged its methodology
The stated objectives of the OIG audit were “to determine if the Mint received illicit gold from its suppliers and if there were weaknesses in the Mint’s controls over the acquisition of gold bullion.” Given that the weaknesses in the Mint’s acquisition regime were so comprehensive as to make any determination of illicit gold purchases impossible, what were Treasury investigators to do?
If the Mint wasn't maintaining or even requesting records showing country of origin and security of supply chain for its bullion, if the Mint wasn't even requesting proof that its suppliers weren't delivering more than the total of the newly mined U.S. gold that they processed each year, then any audit that attempted to categorically rule out complicity in money laundering or terrorist financing would fail instantly.
Instead, the OIG chose to adopt the Mint’s own “responsible sourcing” criteria, such as they were, and judged it according to its own self-imposed standard.
“To determine whether the gold bullion acquired by the Mint was produced by gold refiners on the LBMA’s GDL, we conducted an analysis in which a statistical random sample of 135 gold bullion deliveries was selected from a population of 1387 gold bullion deliveries during a 4 year period,” the OIG wrote. “We found, in our sample, that all gold bullion in the deliveries to the Mint had been produced by refiners listed on LBMA’s GDL and concluded that this provides reasonable assurance that the gold acquired by the Mint had been responsibly sourced.”
The OIG effectively crafted the scope of their audit not to determine whether the original allegations were true, even though they claimed this was the purpose of the investigation. Instead, they set out to determine, through a random sampling of 10% of deliveries over only the previous four years, whether the Mint got lucky in spite of itself and didn’t purchase gold from a supplier not on the LBMA’s GDL.
This is an exceedingly low bar of evidence for the Mint to meet, and it does not appear to maximize the value of even the less-than-adequate documentation that the Mint did maintain. How many separate suppliers of gold bullion did the Mint have BOAs with over the last four years, or even the last 20? A handful? A dozen? How difficult would it have been to instead review the full list of the Mint’s approved suppliers to definitively determine whether any of them had ever been excluded from the GDL for an AML-KYC violation or a compromised supply chain?
Also, each of these suppliers, by virtue of being on the GDL, was obligated to maintain records of their own purchases from every individual refinery that supplied bullion to them. Why couldn't the Mint and the OIG request to review the LBMA-mandated documentation this limited number of suppliers already had, which would list every refiner they were doing business with, to determine whether the refiners listed in the original allegations, or any other blacklisted refiners, supplied them with gold?
The OIG actually admitted in its findings that adherence to the LBMA’s GDL was insufficient to ensure responsible sourcing on the part of the Mint. Tellingly, so did the LBMA itself.
“An official at LBMA told us that LBMA requirements were ‘a robust starting point’ to ensure the responsible sourcing of gold, but due diligence ultimately rests with the institutions to ensure the responsible sourcing of gold in accordance with local and international laws and best regulations,” they wrote. “The Mint buys approximately a half billion dollars of gold annually; therefore, it is our opinion that sole reliance on a foreign entity, LBMA, to set requirements and monitor compliance for responsible sourcing is not sufficient management oversight to ensure refineries are sourcing gold responsibly in accordance with the best interests of the U.S. Government.”
Why, then, did the OIG rely solely on the LBMA’s GDL to determine if the Mint had sourced its bullion responsibly?
Findings, disputes, and delays
For the first finding related to responsible sourcing, the OIG recommended that “the Mint Director ensures the Mint Considers additional procedures to oversee refiners including, but not limited to, obtaining and periodically reviewing documentation from the Mint’s approved refineries, such as the LBMA-required third party audits and supporting documentation, to ensure that refineries are sourcing gold responsibly in accordance with U.S. law and the best interests of the U.S. Government.”
This recommendation was accepted by the Director at the time the investigation was conducted, David J. Ryder, as well as the current Director of the U.S. Mint, Ventris C. Gibson.
But the second finding, related to the Mint’s (non-)procurement of new U.S. gold, was more contentious, and it appears to have been the cause of the four-year delay in the report’s release, during which time none of the recommendations were implemented, and presumably, any U.S. gold purchased was purely accidental. It also may have contributed to the departure of Director Ryder, a two-time head of the U.S. Mint who is well-respected in numismatic circles and whose abrupt exit in September of 2021 came as a surprise to the coin world.
While the OIG could follow the Mint’s lead and fall back on the LBMA’s GDL to claim “reasonable assurance that the gold acquired by the Mint had been responsibly sourced,” the question of adherence to U.S. law was a stickier one, because of its specificity.
The OIG found that the U.S. Mint had, for decades, been marketing many coins as made entirely from newly mined gold sourced from U.S. mines, all while making no attempt to source gold from the United States to fulfill these requirements.
“[W]e found that the Mint cannot ensure that the majority of gold coins produced are minted from newly mined U.S. gold and in compliance with U.S. law,” the report said. “This is in part due to the Mint’s lack of documentation from its gold refiners certifying the amount of newly mined U.S. gold acquired. It is also questionable as to whether the methodology used to determine what constitutes newly mined U.S. gold is permissible under current US law.”
“We also found that the Mint’s ordering process with its gold bullion suppliers failed to stipulate and ensure that gold bullion supplied to the Mint must be newly mined U.S. gold, and that the Mint’s website represented certain gold coins as minted entirely from U.S. gold, which may mislead purchasers,” they added.
To remedy this, the OIG recommended that “the Mint Director ensures the Mint […] within 30 days of issuance of this report, develops a plan that outlines the steps and controls the Mint will implement to comply with [the Gold Bullion Act of 1985 and the Presidential $1 Coin Act of 2005] in the production of gold coins which includes a review of the Mint’s current methodology to ensure it complies with U.S. law.”
“As part of this review, the Mint should publish its procedures for acquiring newly mined U.S. gold in the Federal Register,” they added. “Furthermore, the Mint needs to update its website for accuracy and its BOAs and operating procedures to ensure that these requirements are adhered to.”
OIG and Mint at loggerheads
Here is where the relationship between the OIG and the Mint appears to have broken down. The Inspector General’s report claimed that the Mint’s then-director Ryder pushed back against their second finding, and they also implied that he had been less than truthful with them in the course of their investigation, resulting in a roadblock for the completion of their work which was only lifted after Director Gibson assumed office.
“[I]ssuance of the final report was delayed due to follow-up related to Mint management’s non-concurrence with our second finding and recommendation, as well as competing priorities during the Coronavirus Disease 2019 pandemic. As a result of the delay, as well as disagreement with the accuracy of certain statements made in the August 2020 management response from the former Director, we provided the current Mint Director the opportunity to review our report’s findings and recommendations in January 2024 and revise the management response based on her review of our findings and recommendations.”
The OIG also made it clear in the recently published report that neither they nor anyone at the Mint had found any grounds to dispute the substance of their findings, at the time the initial report was formulated nor in the ensuing four years.
“Our findings and conclusions remained unchanged and are based on the original scope period and work performed,” they wrote. “We held a second exit conference on May 6, 2024 with the new Director to discuss the draft report and a revised management response. We received a revised management response dated May 20, 2024, and Mint management agreed with our findings and recommendations.”
However, even the Mint’s new senior management team believes that the OIG’s recommendations for the second finding could price their products out of the market, and they plan to request that the laws stipulating new U.S. gold be changed instead.
Citing the Congressional correspondence from the late 1980s and the previous OIG audit, Mint Director Gibson said that “the Mint’s gold allocation system was determined to satisfy the Congressional intent of supporting the American mining industry while not resulting in the increased costs that would stem from requiring the specific tracing of U.S. gold to specific bars, and thereby run afoul of the statutory requirement that the Mint not pay more than the average world price for such gold.”
“Then, as now, the mint believes that this gold allocation system is the most appropriate method of satisfying those statutory requirements,” she asserted. “Going forward, the Mint believes that it would be appropriate to seek technical amendments of the legislative provisions concerning the use of newly mined U.S. gold that were enacted in [the two Acts].”
Kitco News contacted the Office of the Inspector General of the Treasury Department with the questions raised in this article. We received the following reply from their Assistant Counsel: “As the Treasury Office of Inspector General has issued its final report, we have no further comments at this time.”
Similar questions were shared with the press relations office of the U.S. Mint, and at the time of publication, Kitco News had yet to receive a response.
Kitco News also contacted former director David Ryder for his perspective on the OIG’s report, but he declined to comment. In an interview from March 2022, six months after he left the Mint, Ryder was asked about the circumstances of his departure. He was sanguine about his second term, and supportive of the institution and its staff.
“As a Presidential appointee, I was appointed by President Donald Trump to be the U.S. Mint Director, and I was confirmed to the position by the United States Senate,” Ryder said. “As such, I served at the pleasure of the President.”
“Each new administration has the right to appoint their own political appointees,” he explained. “Even though I was appointed with a 5-year term, the Biden administration chose to appoint their own person into the position. I was asked to stay on for several months to assist with the transition, but I chose to resign my position and move on.”
“I had a wonderful and talented Mint staff of experts who helped me achieve a good amount of success in my 3.5 years on the job,” Ryder said.
Former Mint Director weighs in
Edmund Moy served as the 38th Director of the United States Mint from 2006 to 2011. Appointed during the second term of Republican President George W. Bush, he continued in his role through most of the first term of Democratic President Barrack Obama, a bipartisan tenure which is not always the case for Mint directors. As the middle of his time at the Mint coincided with the financial crisis of 2008-2009 and the Great Recession, Moy’s tenure was marked by massive changes in the fiscal realities of the United States as well as surging demand for bullion products.
“The Mint is authorized to make these bullion coins, and we are not supposed to cost the taxpayers any money,” Moy told Kitco News. “That is part of our operating ethos at the Mint. And that is not necessarily contradictory or in tension with being able to procure recently-mined American gold.”
“If you take a look at the Mint’s prices, what we sell to our authorized purchasers, which are basically the wholesalers of those coins, those prices are slightly higher than most of our competitions,” he said. “Not dramatically higher, but our processes and our double-checks and our labor costs and all other stuff add up to be a bit more than some of our other competitors like the Royal Canadian Mint or the Perth Mint in Australia.”
Moy said that when the Mint prices a coin, they add all of their operating costs on top of the price of the gold itself, plus an extra 2%, and this gives them their final price.
“Some people call [the 2%] a profit,” he said. “It's really a strategic reserve that we keep for a year and if we guessed wrong, and say the program lost a million dollars, instead of having the taxpayers make up that difference, we take it out of that reserve. Then whatever's left over from that reserve, if we don't use it, that gets turned over to the Treasury General Fund at the end of the year as additional overage that is used to offset federal budget expenditures.”
“So it doesn't matter, really, what the cost of the procurement of the gold is,” Moy said. “American gold might theoretically be higher than South African mined gold, but to us, it doesn't matter, because higher or lower, that's the cost that we procure it at. Our procurement costs might end up making our coins slightly more expensive in the marketplace, but our coins are still so much in demand.”
Moy acknowledged, however, that the massive and stable demand that enables the Mint to charge higher prices than the competition is largely domestic, and is itself built on the promise of domestically sourced American gold.
“Most of our bullion coins are sold to people living in the United States and most of them are American citizens,” he said. “They like the idea of having an American-made bullion coin, made out of gold that's been mined in America, with very American designs on the coins.”
The former director said that the Mint’s reputation also supports strong global demand, which in turn reinforces the strength of the domestic market.
“They're also willing to pay the premium because our coins are the largest sellers in the world,” he said. “Their designs are immediately recognizable and they're very fungible. They can be sold, traded all over the world with much greater ease than some other countries’ bullion coins.”
“For the most part, we're competitive, sometimes we're higher, we're very seldom lower,” Moy said. “But the cost [of sourcing U.S. bullion], that cost has a very marginal effect on our overall sales because of the reasons that I mentioned.”
Moy said the United States Mint shouldn’t be too hard-pressed to procure newly mined U.S. gold as stipulated by law, not only because of the healthy margins on their products, but also because the U.S. domestic mining industry produces so much of it each year.
“We directors, in the past, just go through a logic test and say, ‘okay last year we sold 500,000 ounces; given that the United States produces, 160, 170 tons of gold each year, that's way under,’” he said. “As long as it meets the sniff test, it doesn't really hit on the director's radar.”
Moy did say that while he was director, demand for the Mint’s bullion coins skyrocketed, which could have made procurement more challenging. “The run-up of demand for gold bullion coins was dramatic during my tenure,” he said. “It went from 200,000 ounces a year in steady state, meaning you can look at many of the years prior to that, and outside of the initial program when these were new and everybody wanted them, without any financial crisis, it reached steady sales of roughly 200,000 ounces a year.”
“Because of the financial crisis, we saw that go from 200,000 ounces when I first started with the Mint in 2006, to when I left the mint in 2011, it was 1.4 million ounces.”
“We're still not really challenging that 170 metric tons of gold,” he added. “But boy, that's a big run-up.”
Moy said that in an environment of exploding demand, the priorities for Mint directors and their staff would clearly skew towards fulfilling the availability side of their mandate rather than revisiting longstanding sourcing procedures. Domestic sourcing concerns would become “a secondary issue to the other mandate that Congress has, which is that we should make both gold and silver bullion in quantity sufficient to meet demand,” he said.
“Do I worry about the gold being completely mined in America, and do I have a chain of custody?” he asked. “Or do I worry about my butt being dragged up to Congress and explain why the Mint can't meet demand?”
Moy said that even as the Mint ramped up production to 1.4 million ounces of bullion coins per year, the demand was closer to 2 million ounces. “We had a lot of people complaining, ‘We don't care about where you got the gold, we assume that it's from America, but boy what we're concerned about is your ability to meet demand.’”
He said that in these situations, the Mint would be forced to cut deliveries across the board. “Everybody got in proportion to what they ordered, what we were able to manufacture,” he said. This would leave wholesalers frustrated that they were missing out on tens of thousands of bullion coin sales to their customers which couldn’t be fulfilled.
Different Directors, different conclusions
On the question of why Director Ryder didn’t simply do what Director Gibson ultimately decided to do, and ask Congress to write the existing procurement criteria into law, Moy said it was impossible to know Ryder’s precise reasoning, but he knows how these investigations often go.
“I don't know what was going through his head,” he said. “But I will tell you that any Mint Director in a position like that, when the Inspector General starts doing their investigations, whether you initiate it or somebody else initiates it, there are numerous inspector general investigations and research going on at any time, on a multiplicity of issues. One of the things that executive in the executive branch is sensitive to is when the Inspector General gets involved, in a lot of investigations they need to come up with something to justify the investigation, or the cost of it. Very seldom do you get an Inspector General's report that says ‘That was a false alarm, everything's right, it looks perfect over there on this issue.’ They always need to find something.”
Moy said that in this case, based on what was challenged, he thinks it could have gone one of two ways.
“Again, I don't know what's going on in David Ryder’s mind,” he said, but offered a likely reasoning based on his experience: “It's been done this way, no one's challenged it, we've had no problems,” he speculated. “And now, you want us to do additional work to confirm something that we already got?”
“I'm not saying that was it, but that could be the case,” Moy said. “That approach to an Inspector General's report is fairly common within the federal government, unless the Inspector General turned up saying, ‘Okay, we’ve got evidence that you received a bribery payment and sole-sourced a procurement contract that should have been an open bid, so therefore we are going to make a criminal referral to the Department of Justice.’ Those reports are legitimate, have facts, and all this other stuff. But things like, ‘Okay we didn't find that there was any bad gold or money laundering going on, but we think you doing this and this would be a good idea to increase the ability of the paper trail,’ I could see someone saying, ‘yeah, you had to find something.’”
“For me, if it was an issue like that, why not?” he added. “It's the job of the leadership to push back.”
Impact on the collector community
Everett Millman is Chief Market Analyst at Gainesville Coins, a full-service precious metals dealer based in Tampa, Florida that buys and sells bullion coins across the U.S. and in over 70 countries around the world.
Gainesville Coins is a member of the Industry Council for Tangible Assets, the national trade association for those with an interest in precious metals, rare coins, U.S. and foreign currency, and other numismatic collectibles. The company is also an active member of the Certified Coin Exchange, Coin Net, and the American Numismatic Association.
Millman is very plugged into the coin community, including the wholesalers who bought the Mint’s bullion coins in bulk, the dealers who buy and sell coins on the secondary market, and the end customers who collect the coins as both a hobby and an investment. When the OIG wrote that “the Mint’s website represented certain gold coins as minted entirely from U.S. gold, which may mislead purchasers,” these are the people to whom they were referring.
Millman told Kitco News that the Inspector General’s findings could have a significant impact on the United States Mint’s standing within the numismatic world, because the Americanness of the coins they purchased was a very important factor.
“The demographics of that group, they tend to be very patriotic,” he said. “They tend to be a little bit older, a little bit more conservative, but they, above and beyond anything else, are extremely concerned with the fine details. For a claim like that to come into question, about the sourcing of the gold, it can create some negative feelings or some distrust of the U.S. Mint.”
“I think it matters,” Millman said about the misrepresentation of the bullion as ‘newly mined U.S. gold’ when the coins were sold throughout the years. “It matters more for coin collectors who are halfway between a bullion investor, who only is worried about the metal, and then someone who really does want a piece of historic art, something very symbolic, and something that is worth a premium in excess of its melt value.”
Does terrorism add value?
There is another little quirk of the coin-collecting community that could come into play, however: If the U.S. Mint’s purchase of ‘terrorist gold’ is ever confirmed, and the likely run of gold Eagles or Buffalos it ended up in identified, these could instantly become among the most valuable coins the Mint has ever produced.
“Strangely enough, it creates collecting opportunities,” Millman said. “Anything that's weird, anything that's a mistake, becomes attractive to collectors because there's a story behind it, or there's a limited number.”
Millman said he also sees growing resentment within the community about the premiums they’re paying for bullion coins. “Really since the pandemic [it] has been the most volatile in terms of that premium,” he said. “There is a perception that I’ve heard from a lot of investors and collectors, that they think that it's ‘greedflation.’ They think the problem with the supply chain, the problem with a lot of this sourcing, is that it's artificial and it's just middlemen who are trying to extract extra value from the buyers by these trumped-up claims of ‘oh, the mint is running behind schedule or can't source its silver or gold.’”
“To whatever extent that's true, it has changed the level of trust that investors and collectors have in the official sources, and I don't see that trending back in the other direction,” he said. “I think that right now, it matches the political climate of much of the Western world. Nobody trusts anything, and if it comes from the government, they trust it even less.”
Amendments to the Bullion and Coin Acts coming
In her written response to the OIG, Mint Director Gibson committed to “developing a plan to regularly request and review appropriate documentation from the Mint's approved refineries and suppliers” for submission no later than Monday, September 23. “In addition, the Mint will review the terms of its BOAs and propose any revisions necessary to require that our suppliers purchase gold only from refiners in good standing with the LBMA GDL,” she wrote.
The Mint has also given itself until Saturday, November 16, 2024 – 11 days after the U.S. election – to develop and submit to the Treasury Department for consideration “a legislative proposal that would codify the Mint's existing gold allocation system” by amending “the legislative provisions concerning the use of newly mined U.S. gold that were enacted in Public Law 99-185 and Public Law 109-145.”
