Before we go into full detail here we would like to explain what a premium is so we will begin with defining the term:
Premium – The dollar amount per troy ounce over the current spot price of the metal that a dealer is charging for a bullion bar, round or coin. The “premium” is caused by production costs that a mint or bullion producer encounters when making their products.
Bullion Coin Premiums
Now that you know what the word means in relevance to bullion, lets get into what exactly causes and determines these premiums. First we will discuss the one piece of bullion that probably sells for the highest premium across the board; coins. The bullion coin is very popular because of its collectibility factor but is also in high demand by investors due to its precious metal content.
Coin’s usually contain elaborate designs commemorating a country’s historical figure or one of it’s national symbols or landmarks. This is one reason why coins carry slightly higher premiums. It will cost the government mint more money to stamp each coin with this intricate artwork. This will in turn get past down to the authorized distributor who will then have to pass that down to the retail dealer which in turn means you will pay more money over spot price for the coin. (Also note that there is a longer supply chain of dealers involved whereas if it where just a round minted by a private refinery, the retail dealer could just buy direct)
One of the other reasons that the premium may vary day to day or month to month is one of the basic factors in business; supply and demand. Obviously, since coins are so sought after there is always a high demand. If a mint can’t keep up with demand or if there is a shortage of coins due to other factors, the price may rise as well.
Bullion Bar Premiums
One of the main reasons bullion bars are so popular is because sometimes their premiums are almost non existent. Bars can sometimes be found at less than one dollar over spot price per ounce which is much lower than coins which can get up as high as four or five dollars over spot. One of the reasons bullion bars are so inexpensive is because it costs the mint less money per ounce to produce.
Larger bars such as say a 100 oz silver bar may carry lower premiums due to the fact that the mint only has to stamp the bar one time, whereas if it where 100 1 oz bars they would have to stamp them 100 different times. This in turn costs the mint less money and since most retail dealers buy direct, it will cost you less money.
Since bullion bars have been being produced for a few decades now that also means there are pre owned or used, varied or generic bars which may also be available depending upon the dealer you use. Some generic bars may be priced even lower than new ones or may be slightly higher depending upon collectibilty.
Though collectible bullion bars are less common and there is a limited market for them, there are still some vintage bars produced by sought after brands which may bring higher premiums.
For example some older bars minted by brands like Johnson Matthey or Engelhard containing limited or rare designs may fetch much higher premiums. If a specific bar contains a low serial number, meaning it was one of the first bars ever produced by a mint or refinery, this may also affect the value.
Bullion Rounds Premiums
Bullion round premiums are similar to that of bars and can sometimes sell for anywhere from fifty cents over spot to a dollar or two per ounce. Like coins, some rounds or “medallions” as they are sometimes referred to may contain elaborate designs or designs commemorating historical figures or events.
These types of rounds may fetch higher premiums. Like bars, most rounds can be purchased directly from the mint or refinery. The combination of low production costs and a steady supply means that you will often get them for a lower price relevant to spot.
How To Avoid Paying High Premiums
Now that you know everything there is about premiums and what goes into determining them, we will discuss how to avoid paying high premiums. One of the most crucial points we will talk about is choosing the right dealer. When choosing a dealer, there are a number of steps you can take to assure you are picking a reputable one.
You will probably want to compare dealers to see who offers the lowest prices and hasn’t had too many complaints. You can do this on many sites such as ours under our gold bullion dealer reviews page and top 3 dealers page. You will also want to take shipping charges into consideration as this will affect your overall price per ounce. Buying from a dealer who offers free shipping can help get your costs down.
Another thing to watch out for are dealers who push you towards investing in graded or certified coins. Some dealers choose to do this as they make more money off of this type of coin. Though certified coins may be the right investment for some people, they may not be right for you. That about sums it up, if you have any other questions or comments feel free to get in touch via our Contact Us page located on the bottom of every page.