Gold Premium

Top-Up Gold Premiums added on Gold Spot Price
The following article informs about added gold premiums on the gold spot price and the influential factors.
The gold spot market, depending on supply and demand and with continuous gold price changes is open 24 hours worldwide except weekends. Investors, funds, central banks, insurance companies and private investors provide the gold supply mainly by gold sales whereas the gold supply from production of refineries and scrap smelters have a small influence on the market.
There are many sources online, live and even on our website where the global spot market price of gold which is used as a price basis for contracts, gold future contracts or gold option contracts can be found. For buying physical gold, a so-called bullion premium is added to the gold sport market price, often called just premium, mark-up or top-up applying to bullions (bars) and coins. The costs of the purchaser are covered by the premium when buying physical gold which includes transport, insurance, handling plus the profit margin of the seller. Therefore, professional gold and silver investors and buyers talk about the gold premium of a seller.
Gold Sales Price = Gold spot price + Gold Premium
There are certain rule-of-thumb standards for the premiums of bars of specific weights and for coins of specific provenience. Those premium standards may vary, depending on a number of factors, such as:
• The form and weight offered, such as bars or coins, and the different weights of bars;
• The volume of gold offered or requested;
• The current market supply and demand situation;
• Global and local economic conditions;
• The national market (country) where gold is bought, and
• The sellers’ own objectives.
Gold premiums – the influence of form and weight
Obviously, it costs a mint much more to produce 1.000 gold bars of one gram each than one gold bar of one kilogram. The same goes for the packing, transport and internal handling, banking fees etc. For example, two or three employees going to the vault, transferring gold from own stocks to customer stocks, storing these customer stocks in boxes, sealing them, taking note of bar and seal numbers and entering them later into the stock software creates the same costs for ten bars of one kg each as for ten bars of 100 g each. But ten bars of one kg and ten bars of 100 g have a different value. Reflecting these costs to the price results in relatively lower premiums for larger bars and higher premiums for smaller bars or coins.
Gold premiums – the influence volume of gold offered or requested
The establishment of a gold seller has to cover certain fixed costs such as overhead costs and payment costs, as mentioned above. If those fixed costs can be spread to a larger amount, the seller can be more flexible with his premiums, still covering costs and realising profit. The seller’s cost to sell and handle gold bars worth EUR 1,5 million are not six times of the costs selling gold bars worth EUR 250.000. Therefore, the premium for a sale of gold bars worth EUR 1,5 million is likely to be lower than for a sale of gold bars worth EUR 250.000.
Gold premiums – the influence market supply and demand
As with all goods, an over supply on the market drops the prices, and a shortage in supply, because of strong demand, increases the prices. When demand is low, compared with supplies, gold sellers may decrease their premiums in order to attract more buyers.
When demand is high, gold sellers may increase their premiums not only for the reason of increased appetite of buyers, but also to reduce their sales, safeguarding their own stocks in order to be able to meet many buyers’ requests, rather than being sold out within a short period and then watching their own empty vaults, waiting until new deliveries arrive.
While writing this article (December 2018), the delivery time of Swiss refineries is up to 6 to 8 weeks, due to the high demand in physical gold. In times of normal demand or low demand, the delivery time of Swiss refineries is typically 2 days to 1 week.
Gold markets, and silver markets as well, are generally calmer during the summer months, leading to a tendency of slightly lower premiums. When market activities pick up again, typically with the begin of the Indian wedding season in September, the increased volatility results in more buying and selling on the market, which is likely to increase premiums as well.
Gold premiums – the influence global and local economic conditions
Global and local (national) economic conditions are not only influencing the price of gold but, naturally, the premiums as well. The influence on the premium does not necessarily need to be in the same direction as the influence on gold prices. There might be a big demand for gold, which may increase the gold prices. But gold prices may reach or pass acceptance levels in a specific country, leading to difficulties for gold sellers in that country to sell. Consequently, the sellers in that country may drop their premiums. In countries with a high inflation, like Turkey now, an increasing crowd is trusting gold more than fiat savings (money savings), to preserve their wealth, even if gold demand on a global level stagnates. Global financial crises like the one caused by Lehman Brothers in 2008, demand in gold and silver increases tremendously, which is reflected to increased premiums as well.
Gold premiums – the influence of a sellers’ own objectives
An individual seller’s own objectives may have an influence on the gold premium, as mentioned above. A concern not to run out of inventory may lead to an increase of a seller’s gold premium. Excessive gold stocks may lead to a lower gold premium of a specific seller. A seller entering a new market may offer discounted gold premiums to attract more potential buyers. The same typically applies when a seller wants to increase its market share, or to beat strategies of competitors.
Please note that the above information regarding gold premiums applies also to the premiums added to the global spot market prices of silver, platinum and palladium, with the exception that the standard rates are different.
Why LIEMETA ME LTD?
LIEMETA ME LTD, Nicosia, Cyprus, provides:
- Physical storage of precious metals at its prime location in Liechtenstein
- Trade services of precious metals, mainly Gold, Silver, Platinum and Palladium.
- Safe and secure storage
- Full-cover insurance including embezzlement.
- Your stored asset is fully legally owned by you, client assets are of course not on our companies’ balance sheets.
- We are a privately owned, independent and non-bank company, meaning that our services do not fall within the scope of CRS or AEOI.
- We provide 100% discretion, 24/7 access to your stored assets at our sophisticated unit and high-security building.
For further information please contact us through our website www.liemeta.com.cy