Tuesday, March 16, 2010

Why Are There Premiums on Gold and Silver Coins?

This is a quick update with some buying tips in the area of premiums, for the first-time, small investor looking to purchase small denomination tradable coins or bars. I often get asked why smaller coins have a higher premium, etc. Or why gold/silver coins are not available at spot price of the metal. There is always premium on 999 fine gold and silver bullion.

Part of the premium, of course is a result of the refining, minting, administration and distribution fees for the actual manufacture of the coin. When you go to the gas station to fill up, you are not paying the spot price for a barrel of oil at the pump. There are many costs involved in the refining and distribution of fuel. We just expect that as a fact of life. It is the same for precious metal coins.

When the spot price of silver dropped considerably last year, the high premiums we were paying at the time reflected what was considered as a natural correction of what a more realistic price of silver should be based on supply and demand. The low price seems farcical as many people wanted to buy silver at that price, but there was low supply and long waiting times. Suppliers were charging 40% premiums. So if an economic event occurs that will spike the demand for an American Silver Eagle, and the mint has only regular reserves available, the high demand and low supply will push the premium higher.

SOME BEGINNERS TIPS:

Always research what premium you should expect to pay before buying. There's a few simple ways to do that:

1) Here's a website where you can see what to expect: 24hGold.
Scroll down all the way to the bottom on the left hand side until you see "Let's Get Physical - BULLION - METAL VALUE AND PRICE" On the right hand side of the chart in green text, it lists the average percentage of premium to expect. Use this information to compare and shop around for similar products and rounds. There are other premium research tools at the top right of the site under the tab "BUY AND SELL GOLD ON EBAY"

2) Another good thing to do is a quick comparison directly on the Ebay site for a similar item. So for whatever you are looking for, type it into the Ebay search field. For example, type “100g bar silver”. It will come up with what they are being sold for that day/week.

3) If you have the time, take a saunter down to you local coin or precious metals exchange shop. Prices will change daily.

Your goal should be to accumulate the maximum oz's of gold and silver for your money as possible. Part with extra premium for a premium product that will offer added insurance. As an example you may consider paying extra margin for a smaller denomination or non-legal tender private mintage. Buy before the rush! When everybody is rushing into the bullion market at one time, premiums soar very quickly.

This will get you up and running to begin buying right away. Now for all of you seasoned gold and silver buyers reading this article, I welcome your comments and additional personal tips you can pass on to everyone.

Find out why I prefer privately minted bullion rounds and coins here.

Kirsty Hogg

25 comments:

  1. Hello Kristy,
    Great information! I just thought I would throw in the perspective of the manufacturing of bullion rounds. When we buy large silver bars and silver shot, there is already a premium tacked onto it, along with the freight costs. When minting these rounds we have utilities to pay, machines to repair (on a regular basis), employees to pay, government fees, and etc... From the premiums we charge, we end up being able to keep just a small portion as profit. That is why quantity plays a huge part in the pricing of a bullion round.

    Sorry for the long reply, I just thought I would throw that in to give a better ideas of where those premium costs come from. Again, thanks for the information!

    ReplyDelete
  2. Hi Jim, No apologies as I welcome your input on here. You have a great blog, by the way - http://qualitysilverbullion.blogspot.com Thank you for the comment and the additional information. Best regards, Kirsty

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