Gold And Silver Premiums Guide: How Bullion Premiums Work
The price of gold and silver isn’t just a matter of knowing the current bullion values, which fluctuate all the time. Baseline gold and silver prices might drive the bullion market. However, when it comes to buying and selling bullion coins, rounds, and bars, there’s another element that will dictate how much you really pay for these precious metals assets.
This factor? Premiums.
Premia on government-issued bullion coins, such as Silver Eagles and Gold Eagles, have remained stubbornly high.
What Are Gold and Silver Premiums?
In the most basic sense, a premium is a buyer markup – a price above the base gold or silver prices as witnessed in wholesale trading and retail sales. But it’s not as simple as that alone.
Bullion premiums can vary depending on whether you’re a retail or wholesale buyer, what type of gold or silver item you’re buying, and whether the market is hot or not.
Unlike gold and silver prices, premiums are not necessarily pinned to a rigid industry-wide figure. Spot prices are generally rooted in an absolute dollar amount that changes like stock prices throughout the business day. Rather, premiums are often somewhat fluid. This permits some degree of deal-making both within the wholesale arena and in the retail setting – the latter being where most folks reading this article will do their trading.
Which Items Have Higher Silver and Gold Premiums?
Precious metals premiums are generally higher for bullion items with numismatic tendencies. This includes pieces such as pre-1965 90% silver and pre-1933 U.S. gold coins. In more recent years, the United States Mint American Eagle coins have witnessed a tremendous rise in numismatic interest. This has pushed up premiums even for typical bullion-finish coins within this program.
More utilitarian bullion items, such as bars or rounds, usually carry lower premiums. Though even among these pieces, price margins vary widely.
For example, older or scarcer silver bars can command tremendous premiums over their spot price. This applies to bars such as vintage pieces from the Engelhard line. The same goes for ornate silver rounds, those belonging to an annual holiday program, or pieces bearing recognizable intellectual properties like comic-book heroes or cartoon characters.
Nonetheless, generic silver bars and silver rounds will have lower premiums than silver coins of the same weight. The same is true of gold bars compared to gold coins.
Engelhard silver bars are no longer in production, so they have become vintage collectibles with higher premia.
Why Are Gold and Silver Premiums Important to Know?
If there were no premiums, and every dealer charged just spot price, then virtually every bullion merchant you bought from would ask the same amount for like items. But that’s not the way the economy works. Dealers must pay for overhead, employee salaries, insurance, and – yes – they’re entitled to earn a little profit, too. That’s why they’re in business!
We also know that when it comes to customers choosing where they’re going to make their purchases, it’s not always the cheapest price that wins out. Let’s say there are two gas stations across the street from each other, and each is offering gas at slightly different prices per gallon.
Maybe the cheaper option is a ho-hum, rinky-dink station whose gas quality you’re frankly unsure about. The pumps don’t always work, and they don’t even sell a decent cup of coffee on your way to work. The more expensive avenue might be a leading brand name whose quality you trust and where you can pick up a cup of coffee you’ll love – and a tasty breakfast item you won’t worry about eating.
Which brand are you choosing? Are you really going to sacrifice quality, service, and convenience for a few measly cents per gallon? Amazingly, some consumers just think “cheap, cheap, cheap.” And guess what? They get what they pay for – maybe with some water in the gas tank and a stale cup of Joe, to boot.
As with any product or service, the quality of an option usually determines its premium.
In a free, capitalistic marketplace, premiums are where the competition gets heavy. This holds true whether it be in the gasoline and convenience store industry or in the bullion world. As a buyer, you need to consider premiums as not an annoyance but as a necessary element in factoring how much you’re willing – or going – to pay to purchase good (read: authentic and high-quality) bullion.
Unfortunately, a lot of people fixate on spot prices and will spend an inordinate amount of time chasing deals that approach spot prices. Sometimes these folks are successful in their bidding, but often they wind up getting burned in bad transactions. Or they may become saddled with subpar or sometimes even counterfeit goods they can’t (and shouldn’t) unload back onto the marketplace.
Tips for Buying Precious Metals & Shopping Around for Premiums
Do your research online or by phone, calling different dealers to get a feel for where premiums are on the items you wish to buy. You’re going to find that prices do vary, but so might the level of service and selection.
Ask yourself what you’re looking for in terms of price, selection, and quality. Considering these factors, what’s the overall value of what each dealer is offering you?
When considering market premiums and the prices dealers are quoting, have a realistic expectation about where the market is. There was a time before the COVID-19 pandemic during which a regular retail buyer could expect to buy a recent-date American Silver Eagle for maybe $4 or $5 over spot per coin, tops.
Since the pandemic, increasing demand and slimmer supplies have pushed that silver premium to $8 or $10 or even more, regardless of who you buy from. If the market softens and supplies get stronger, these prices could fall.
But live and shop in the now, not the then. The market premiums you may remember from a few years or a decade ago might have been the rule of the day then, but things are changing quickly in the bullion world.
Do your homework, figure out what the prevailing premiums are for the items you want to add to your collection or portfolio. Then start crunching the numbers on what options work best for you.
The premium on a privately minted silver round or silver bar is invariably lower than a government-issued bullion coin.
You’re going to find dealers selling items with outlying premiums on the low or high side. You'll also find a whole bunch offering competitive prices somewhere in the middle. Often, making that choice comes down to who offers a particular type of service or quality guarantee, speed of service, or most likely the availability of certain items.
Sometimes, something like brand loyalty, a recommendation from a trusted friend, or the rapport between you and the bullion staff is what seals the deal.
No matter who you choose to buy your bullion from, make sure you’re comfortable with the quality they offer as well as their experience and expertise in dealing with bullion. Find out if they offer a return policy or at least a stated guarantee regarding your satisfaction with the purchase. Does the dealer belong to legitimate industry organizations, like the National Inflation Association or the National Coin and Bullion Association? What is their customer feedback like on Google or Yelp? Choose wisely and be sure the deal you make is one you’re going to be happy with – both now and when the time eventually comes to sell.
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