Philip Diehl on the Booming Business of Gold Coins

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1:18Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Tracy Alloway. Tracy, you've actually benefited a little bit from this move up in gold lady, right? You're a bit of a bullion hoarder, right? I thought you were about to call me a gold bug. I know you're not a full-on gold bug, but you're like gold bug adjacent or silver bug adjacent or something like that. Let me just be clear. I have inherited my long gold position, I guess, and silver as well. So for some reason, every year for my birthday and for Christmas, my dad gives me either a gold coin or a silver coin from his personal collection.

1:57He got it in his mind that I really enjoy coins, I guess. And now I kind of do. There is something satisfying about having physical coins and sitting there. And I don't stack them on YouTube or anything. But I do like to check occasionally that they're still there. And I do get a little bit of satisfaction when I look at my little pile of gold and silver. I have to say, the one thing, I don't own any physical gold. I do like the idea of owning a bunch of silver and stacking it on a table and doing a YouTube video about that. Everyone should go look at the silver stackers on YouTube. I would be scared.

2:36You know, you could like bury them somewhere like out in the wilderness of Connecticut. I would be scared to hold a lot of bullion on my person. And then I would be scared to hold them in a bank because if everything goes bad, is the bank even going to be open in a safe deposit box? So I like the idea in theory of having a lot of precious metal. So anyway, precious metal has been doing really well lately. It has. I was just looking at a chart of gold. So it hit another record high just at sort of mid-April. And then it came down quite a bit. And now it's up again. Like we're almost back to that record.

3:12It's pretty extraordinary. Gold is sort of living up to the hype because there's all this chaos and everything in the markets and the economy and politics. Gold is up. So hats off. Yes. You know what I like about gold? Tell me. I like the advertisements that you see on TV. And the interesting thing to me is, like, obviously, the companies that are doing those ads are pitching an investment. But so much of the investment pitch is sort of mixed up with cultural values. So, for instance, I was watching one earlier in preparation for this episode, and they were talking about how when you're walking down inflation boulevard and global instability avenue, you really need the safety of a gold coin, which not only represents security via gold, but also the security of the United States of America.

4:05Like you get all these cultural references wrapped up in coins. 100 percent and every coin has its design and it evokes all this stuff about heritage and everything anyway i'm really excited because we actually do literally have the perfect guest because it touches on many things that we're interested in it's someone who i've actually known for a while i've talked to before someone who we're going to talk about coins but we're not going to talk about um well let's just my most hated coin yeah you see there's one coin that Tracy hates. So we are going to talk to Philip Deal. He is the president of the U.S.

4:44Money Reserve, which sells gold. He was also, I think, one of the great mint directors in U.S. history. He was the 35th director of the U.S. Mint, where he, among other things, had numerous accomplishments. He was instrumental in the Sacagawea dollar, a dollar coin that was very successful, least sold to collectors. He was behind the 50 state quarters project, which if you remember the 90s, they made a quarter for each of the states. Turns out our producer Dash has all of the 50 state quarters, which I didn't know. And we're not going to talk about this, although maybe relevant again with the debt ceiling come up.

5:20He was also the one that got the language in the law that in theory allows for the creation of a platinum coin of a high denomination, which could be used to circumvent the debt ceiling. We're not going to talk about the trillion dollar coin on this episode. We are going to talk about gold coins. Philip Diehl, thrilled to have you on to talk now. Appreciate you coming on OddLots. It's great to be on. I've looked forward to this. I'm so excited. Tell us about where to start even. Just tell us what the U.S. money reserve is so people understand where you're coming from. What is the business of the U.S.

5:58money reserve? We're a retailer of gold, silver, and platinum coins to the U.S. market. We sell mostly U.S. government coins, issued coins, but also coins of other nations. We are probably in the upper mid-level of the marketplace. And I'd say that we're different from our competitors because we market very differently. I have a very different approach from what is typical in the industry. This is something that I've really focused on for the last several years. For example, all of those advertisements that really harp on the end of the world and how gold is your go-to investment for really hard times, a lot of that is meth.

6:51And when you look at the record, gold has performed extraordinarily well over the last 25 years in good times and bad times. And a great example of that is right now, of course, this has been a hard year for stocks. And stocks are down probably the last time I checked. Of course, this changes daily, but down about 7%. And gold is up 27 % this year. But last year was a great year for stocks. and stocks were up 23%, but gold beat it at 28%. And when you look back over the last 10 years, five out of 10 years, gold has beat the S &P 500. To this point, my mom asked me last year if she should invest in gold.

7:37And I hate it when family members ask you these kinds of questions because I'm not in the business of providing investment advice. But I told her, sure, why not? Just don't put all of your money in gold. And now fast forward like eight months, she's mad at me for not recommending that she buy even more gold. She took apparently a conservative position and should have bought more. But maybe I'll start with my biggest question, which is what makes a coin popular? Well, a number of factors go into it. One is the denomination for obvious reasons, the bigger, the better. Also, the metallic matters.

8:19Gold, more popular than silver. And design also is hugely important. And this is something that we really played on with the Sacagawea Golden Dollar. It's important that a coin be distinguishable, that it not be confused with another coin. The Susan B. Anthony had that reputation with confusion with the quarter. Also, the design was not a popular design. Susan B. Anthony was not attractive on that design. So one of the things we wanted to do when we introduced the new dollar coin was to find a topic that the topic itself would be hugely popular. and the book Undaunted Courage had come out probably about a year before we launched that coin and of course a part of that story was the story of Sacagawea and her role on leading the Lewis and Clark expedition across the Rocky Mountains and that had really captured the imagination of Americans, and especially the story of Sacagawea carrying her infant son, Jean-Baptiste, on her back through that entire journey.

9:40And we ended up having the design competition for a design that fit that theme, and we ended up with a beautiful design done by Goodacre. And as a result, also, we did a lot of market research on what would be necessary to make this coin successful. And when we launched it through Walmart, they had people standing in lines around blocks all over the country. We had something like 150 million of them distributed within the first month. And it was an enormous success. But one of the things that is always a challenge for a dollar coin in the United States is you've really got to withdraw the dollar bill when you introduce the dollar coin.

10:31And that's been the case all through the Western economies where the high denomination bill has to, or low denomination bill has to be eliminated when this high denomination coin comes in.

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11:54EasyCater, your business tool for food. To learn more, visit easycater.com slash podcast. How do you actually measure the success of a coin? Because if I think about something like the Sacagawea dollar, you're talking about initially there was a lot of interest in it, but I think production didn't last for very long. And there are some people out there who would say, actually, it wasn't that popular with investors or Americans over the longer term. Yes, really a circulating coin like the second golden dollar is successful if it circulates, if Americans use it in commerce. And we saw one of the challenges you face is a priming of the pump.

12:41Unless you get a lot of coins in circulation immediately, then it doesn't really enter circulation. and one of the constraints that coins face is the change tray in a cash register. At least that was the case 25 years ago when we were launching the golden dollar and there's not really a place for a new denomination coin unless that is made by the commercial entity like by taking a quarter rolls out of one of the bins. And so that was the first big challenge that we faced. And you would think that it would be relatively straightforward because the Federal Reserve is our customer, the U.S. Mint's customer for circulating coinage.

13:31The U.S. Mint produces the coins, the Federal Reserve purchases them at a markup, believe it or not. U.S. Mint is a profit-making enterprise. And then they're distributed around the country and then banks purchase them from the Federal Reserve. But when we went to the Federal Reserve in part of our market research and talked to the banks, they still remembered sort of the disaster that the Susan B. Anthony launch had been 20 years, actually 40 years earlier. And they said, well, all you have to do is prove to us that this coin will be accepted by the American people and then we'll order it. Well, that was a catch-22 for us because, of course, unless they ordered it, we couldn't make it work.

14:23And so I ended up going to Walmart and asking if they'd be interested in launching the coin in all Walmart and Sam's locations on the same day at the end of January 2000. And they caught the vision of what that would mean and it was a huge success for them. And we produced over a billion Sacagawea coins in that first year and distributed them first to Walmart. We had a contract with them to provide 300 million Sacagaweas, and we had to go back to them after the first half had been delivered and say, we need to be let out of the second half of that because now the banks are calling. and they haven't ordered any and they're really unhappy that customers are coming to them, they don't have the Sacagawea and they're calling the Secretary of the Treasury and the head of the Federal Reserve and complaining so we want to take care of them as fast as we can so it was an enormous success and not just because people collected it but because they were also using it but banks don't like coins They like bills.

15:42They don't like coins because coins are more expensive for them to handle, to ship. And we expected that. There was a natural resistance to it. My term expired in early 2000. So, Psychiatria lost a champion at the top of the mint at that time. And the momentum was lost over the next several years. Tracy, I could listen to technical details. Coin stories. Public, yeah, and like, you know, the fact about change trays and how difficult that is. I could listen to that for a really long time. Also, what I appreciate about this story is the sort of the entrepreneurialism involved of like having to go out to the Walmart and the Sam's and stuff like that.

16:28It's like a product launch. Yeah, which we don't normally associate with anything in the government for the most part, except, you know, the mint is unique. Also, of course, you're a policy entrepreneur, but we're not going to talk about that specific area of the trillion dollar coin. Okay, I'm on the U.S. Money Reserve website, and I see that you have a one, right, at today's prices, a one-ounce gold American Eagle Type II coin for$3 ,809.71, a one-ounce South African gold Krugerrand. Something very sexy about holding Krugerrand specifically, I've always thought. That's$3 ,806.31. Same price for the Austrian gold Philharmonic coin.

17:09Ooh, I have one of those. Really? Yeah. And I have the Maria Teresa gold coins too. I probably shouldn't say this on a podcast. You have a hundred of these coins. Just don't give the location at home. Yeah. And then also some silver coins that depict battles. But I want to just ask a little bit about the sort of basic supply chain here of some of these coins. So these are official government coins that the U.S. Mint still produces and then sells them to some distributor at a markup and then you sell it at a further markup. Is that basically the gist of how these coins come into existence? Yes, just like any other product.

17:44And you're exactly right that we had treated a number of new products as typical commercial product launches. And so just like any other product, the manufacturer has a markup, the distributor has a markup, and then also the retailer has a markup. And that's true for all bullion coins that are produced by other nations as well. And it is a competitive market. In the U.S., you can purchase any number of bullion coins produced by other nations, and they market them in similar fashion and mark them up in a similar fashion. It's a very competitive market. So speaking of markups, one thing I've always struggled with when it comes to coins is how much of the value is derived from the actual precious metal content, whether it's gold or silver or platinum, versus how much of the value is derived from the collectability and the general design or availability of the coin?

18:51Okay, it's important here to distinguish two different kinds of coins, actually three different kinds. One is bullion coins, precious metal coins that are sold at a slight premium above the spot price of gold when they are sold. Then a second type is a collectible coin, like a numismatic coin. U.S. Mint produces annual sets, also precious metal commemorative coins, and then circulating coins. So the precious metal coins that are bullion coins and collectible coins are priced and marketed in very different ways. Commemorative coins are produced to much finer quality. And the strike is, they're almost one offs.

19:44There are multiple strikes in order to get that fine design, raise the design and get the polish finish of those coins. And because the production process is much more detailed, there are fewer coins produced, many fewer coins produced. They are priced differently. They're marketed differently. They're sold directly by the United States Mint. And those coins, a substantial portion of the cost is reflected in those additional costs. And so it will vary depending on which metal you're talking about, but maybe 10 % of the price or so of a gold coin or a platinum coin is represented by those additional costs.

20:35Whereas for a bullion coin, as I was saying, those are highly competitive. They're produced in very large numbers. They're not produced as collectibles. Sometimes they are collected, but they're not produced for that reason. Would an American Eagle count as a bullion coin or a sort of finite collectible item? Because I know they issue them by year. Yes, they do. There are two versions of it produced. The bullion coin is produced in very large quantities. By law, they're supposed to be produced to meet public demand. The law states, although sometimes the mint runs into bottlenecks and cannot fully meet demand, and they are produced in very rapid mass manufacturing processes.

21:31The Eagle is also produced in a collectible, and it's called the Proof Gold Eagle. And it is produced according to those very high standards I was describing earlier and is sold at a significant premium above the spot price of gold. I'm looking again at the website and one of the other things you sell is a Pearl Harbor gold coin, which is identified as exclusive to the U.S. Money Reserve and features Queen Elizabeth II on the obverse, Navy ships and Japanese fighter planes on the reverse. Can you talk a little bit, is that a U.S. government coin? Because there is also private stamping, right? Like someone can, you know, someone could get gold and stamp whatever they want on it and sell it.

22:19Yes. Can you talk a little bit about that? Those aren't really coins. When they're produced, they have to be legal tender to be coins. You know, you see it, football games, the coin toss. Well, those aren't coins. Those are medals. They're medallions because they're not legal tender. It's not a U.S. coin. We usually don't put royalty, foreign royalty on our coins. And this is a Queen Elizabeth in this case. These are coins by other nations that the U.S. Mint does not do this. It does not produce bespoke coins, according to order, but other nations do. And it's not unique to U.S. Money Reserve.

23:03Other companies do this too, but we have been more aggressive in developing coins through other governments in limited quantities that are collectibles in precious metal and marketing those. typically we are celebrating an anniversary. A percentage of these coins, the sale price of these coins typically goes to a charitable purpose. We have been very supportive of the U.S. Navy Memorial. So that's one of the ones that we really stood behind. One thing I wanted to ask is when you're designing a coin. So when you were at the US Mint, and I'm not talking about precious metal coins here, but just your sort of standard coin, how much does profitability come into considerations for designing a coin?

23:58Because I know, with the Trump administration talking about maybe getting rid of the penny, this seems to be even more of an issue than it used to be, although people have been debating the existence of the penny or whether it should exist for for decades now. But do you sit there and write on a napkin, it's going to cost me X to produce and I'll be able to sell it to the Federal Reserve and the banks for Y amount? Yeah, it's a factor. No doubt about that. And to a certain degree or to a great degree, the U.S. Mint doesn't have discretion in the specifications of the coin. They are laid out in great detail in the legislation that authorized the coin.

24:43The lone exception to that is the platinum bullion coin, in which Congress, I'd ask Congress for virtually total discretion on that coin, and they gave it to us, and the trillion dollar coin came as an unintended consequence of that. There's no escaping the trillion dollar coin. Well, you can't miss it. But yes, all the details are in the legislation. But the Mint does attempt to produce those coins in the most efficient fashion possible within those constraints. And the penny has blown away our capacity to make profitable for over 30 years. I was the first mint director 30 years ago to recommend elimination of the penny you can see how much influence I had but it's long overdue to be eliminated there was a problem back in the 70s I believe where the penny had negative seniorage and I can describe what seniorage is here in a minute but it's basically profit and so and the coin was being it was all copper at the time the corn was being melted down because copper the copper content was worth more than the penny was and um and so the the congress stepped in and changed the uh composition of the penny and we have a similar situation now with the nickel where it's a money loser the production of the nickel is a money loser but um it might be profitable if there were some changes or at least the amount of money that is lost producing each coin would be decreased.

26:28Now, one of the things that came out of the Sacagawea coin and the 50 State Quarters Program, and those two huge projects, very entrepreneurial projects, as you were alluding to, Joe, those were launched within about a year of each other. And that took the U.S. Mint's profits. And our profits, the U.S. Mint's profits, go to the American taxpayer. They go into the general fund of the treasury. And we took profits from$700 million a year when I came into the Mint to$2.6 billion after five years. And I told my staff that they'd all be wealthy if we were a private enterprise. But we didn't get paid by the coin.

27:14Let's talk a little bit about the business more of selling these collectible coins and bullion coins and so forth and gold coins to a retail customer base. I have a couple of questions. One is, is volume associated with price? Because you must see – when the line is going up in terms of the price of an ounce of gold, do you generally see a correlation in pickup in people wanting to buy gold coins? Absolutely. It's been a tremendous 19 months since this rally, this bull market began. And over that period of time, we've seen prices go up$1 ,600 an ounce from$1 ,800 to$3 ,400 this morning. And it's been one record after another being set.

28:08So we see a tremendous increase in demand. I think most people in the industry do. What about the demographics? So obviously, generally, I think of the gold coin buyer who would buy from U.S. Money Reserve is probably someone like Tracy's dad's age specifically. What have you seen demographics? Do younger generations, does Gen Z or millennials, do they care yet about holding collectible or bullion coins? When I was director of the Mint, I was in my 40s, and I would describe our buyers as being white male and over 50, and there's nothing wrong with that. I aspire to be one someday. But worry about that demographic, you know, is fading out over a decade or two.

28:57That's not the case today. Gold is hugely popular across a very wide spectrum. And that's not surprising, given the amount of coverage, news coverage gold has received over the last two years. And these record prices, especially when the stock market is falling. People are looking for safe havens. And gold is the ultimate safe haven. It's been around for 5 ,000 years. It's always had value. It's had value worldwide. It's the universal safe haven. And what we're beginning to see in some of the market research is a skewing of interest to younger audiences. That includes millennials and Gen Z. and some of the research indicates that they have greater interest in gold than boomers do.

29:54That was really a surprise to me, but not too much of a surprise once I thought about it, because those of us who grew up in the 60s and 70s were less focused on money and protecting ourselves than what our kids are. And so that's extraordinarily smart and forward-looking for them to be thinking about their futures and thinking about the role gold would have. Now, the issue comes up, what percentage of a portfolio should be in gold? I tell people, never put all of your money in gold. Don't put all your money into any asset. There needs to be diversification in any portfolio. And the right percentage depends on how old you are, your risk averse, how large your portfolio is.

30:50There's no one-size-fits-all recommendation. But one of the factors I do recommend people to consider is how optimistic or pessimistic you are about the state of the world, the state of your own finances. and considering the safe haven history of gold, the more pessimistic you are, I do recommend a higher percentage of your portfolio in gold.

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