When you factor in current metal prices, the US Mint is in a bit of a pickle.

I caught this article today on Seeking Alpha, which discusses a lot of topics, ranging from the new US Mint commercials, to the cost of making the penny and the nickel.

Who’s Minding The Mint

According to this report from July 2006, the US penny is made up of 97.5% Zinc, and 2.5% Copper. As of July metal prices, it cost the US approximately 1.4 cents to mint a penny. Given the recent rise in metal prices since then, it may be closer to two cents now.

According to this link from the US Mint, they produced 7.348 Billion pennies in 2006.  If they mint the same in 2007, that means we’ll lose approximately $73.5 Million in production costs of pennies alone.
Everyone picks on the penny, but I thought this tidbit about the nickel was interesting also, since it looks like it is in the same boat:

And speaking of nickels, composed of 75 percent nickel and 25 percent copper, this coin has its own budget problems. When the calculation was done in July with the price of nickel at $13 a pound, the value of the metal content alone came out to almost seven cents.

If other production costs and the current metal price are factored in, it’s closer to a dime.

I’m a little surprised that there hasn’t been some form of arbitrage to buy pennies in bulk and sell them for scrap metal. Maybe the scrap prices are still too low to make it worthwhile.

Already, with Platinum and Gold prices rising, you’ve seen a breakout of new metals in relatively fancy jewelery (like wedding bands) – Titanium, and in some cases, Tungsten Carbide! I wonder if we’ll need to do a metal rotation in our currency to “less expensive” metals.

It seems that inevitably the smaller coins will eventually vanish – not due to inflation, but due to the growing use of digital forms of payment (credit/debit cards, key fobs, cell phones).

In the meantime, though, when someone gives you a few pennies and a nickel for change, you can feel smug about getting double your money’s worth in metal.