Now that you have decided to build a house of precious metal investment let us walk you through the crucial aspects of your foundation. Understanding the significance of the silver premiums and silver spot prices, as well as the gold premiums and gold spot prices, is the start of building a solid foundation.
What are gold and silver premiums? To clarify this question, this article has curated all the information you need to understand the basics of premiums and the various factors that influence them. However, while studying silver and gold premiums, you will notice that they vary in most cases.
Hop in on this journey to begin your precious metal investment portfolio with a bang and create a foundation of a strong understanding of silver and gold premiums and spot prices.
What Are Gold and Silver Premiums?
The precious metals cost the prevailing market price of the particular metal. It incorporates both the spot price and the merchant premium. The melt-value or raw metal price in a spot price is weighed per ounce. Conversely, the premium is the surcharge by the merchant or dealer that you incur above the spot price while acquiring them. Costs that are included in the amount paid as the premium include production, handling, and distribution fees as well as insurance costs.
For example, it takes $30 to procure one silver coin. That is composed of the spot price of silver at $27 and a premium or additional cost at $3. One can view in percentage how these premiums can differ about the metals. Moreover, these premiums, like the spot prices, are also sensitive to influences.
The Factors That Influence Premiums
Silver and gold premiums are influenced by several factors. These range from microenvironmental to macroenvironmental factors. The premiums are partly determined by such factors as:
- Mining and Refining Costs: Gold has touched the peak in the past few days, leading to increased demand. However, its scarcity and nonrenewable nature don’t suffice this increase in demand. Therefore, this also gives rise to a hike in mining and refining costs of gold, and the same is applicable for silver.
- Investment Demand: Many investors prefer investing in precious metal bullion that is rich in detail, possesses great value, and can easily be liquidated; premiums tend to be higher mainly due to the demand for such products. Otherwise, products that have low demand or are in surplus amounts will be the opposite.
- Product Specifications: The product specifications, which include the design, inscriptions, finish, purity, and packaging, are often overlooked.
These are some of the main factors that greatly influence the premium of silver and gold. Apart from the above, you will encounter other factors as you invest in precious metals, including factors that can impact the dealer’s overhead costs, which include rent, employee salaries, and utilities.
Why Premiums Vary Between Gold and Silver?
The product price can provide a simple example of the varying premium between gold and silver. If a silver product is worth $30 and has a premium of $5, the premium is a massive 16.67%, while when a gold product priced at $1500 has a premium of $8, the premium is only 0.53%.
This mathematical depiction is the difference that premium as a percentage can bring. The factors, however, that impact the varying premiums between silver and gold are:
Market Size: The overhead cost and market size, including liquidity, are inversely proportional to the premium. Silver’s market size is small, and liquidity is comparatively lower, resulting in higher premiums, whereas the gold market is larger with easy liquidity, bringing the premium low.
Product Size: Similar to market size, the smaller the product, the higher the premium, while a larger and heavier product would have a lower premium.
Conclusion
Since you have built a solid foundation, you should invest in precious metals that will enhance your portfolio and collection with stunning beauty and intrinsic value. Understanding silver premium and spot prices, as well as gold premium and gold spot prices, is crucial in the investment journey to ensure value preservation and longevity.
Keep yourself updated with the spot prices and only purchase from reputable dealers. Happy Investing!
