Infographic: Premium on Gold and Silver Explained

Anyone who has ever delved into Buy gold Or buy silver know that the price of coins and bars is always a bit higher than the global spot price of both precious metals. On gold, the premium is only a few percent, while the premium on silver coins is often above 20% compared to the Silver Price. How is that possible?

Exactly that is determined on the basis of the following infographic by JM Bullion made clear. The premium is made up of a number of components, in short these are the following...

1. Cost of production

Minting coins and casting bars is a process that requires large machines and skilled personnel. For large gold bars and silver bars, the premium is very small, but for smaller coins and bars, the costs are of course a lot higher in percentage terms. Therefore, you pay a relatively lower premium for large bars and coins than for small bars and coins. The degree of finish and packaging as well as the mint's pricing policy also affect the premium.

2. Transportation costs

Gold and silver must be sent from the mint to the wholesaler and from the wholesaler to the shop with insured transport of valuables. These costs are also indirectly included in the price of coins and bars.

3. Inventory Financing

Due to the high value of precious metals, wholesalers and stores often have to finance their inventory somewhere. There are costs associated with this. In addition, the price risk must be hedged, for example with futures contracts. That's not free either.

4. Wholesale & Store Profit Margin

Of course, the wholesaler and the shop also need to make some money from trading precious metals. Contrary to what you might expect with the large amounts of money involved in this sector, the margins are quite thin.

5. Tax

The tax explains why the premium on silver coins is so much higher than on gold coins. Within the Eurozone, investment gold is exempt from VAT, while silver coins are traded under the favourable margin scheme. Silver bars are taxed with the full 21% VAT, because this type of product is classified as a raw material. Platinum and palladium are therefore also subject to the high VAT rate of 21%.

6. Supply and demand

The mints, suppliers and shops often only keep a limited stock of precious metals. When demand suddenly increases sharply, shortages can occur, for example because mints and smelters cannot produce enough in a short period of time to meet market demand. In this situation, the premiums can be quite high. When the market is calm and stocks are replenished, premiums usually fall again.

Premium on Gold and Silver Explained (Source: JM Bullion)