I decided to write this article to explain to people about the premium in gold and silver because I have been getting too many enquires on this topic lately. People need to know what they are paying for and how all these premiums are calculated. Below I will answer some of the most common questions that people ask me.
What are premiums?
Gold and silver price are measured in spot. Spot price can be found is www.goldprice.org or www.kitco.com/market/ which shows the current paper price for gold and silver now. Premiums are the extra amount of money you pay for holding the physical gold and silver instead of holding an imaginary entity like those paper gold. If you don’t hold it you don’t own it. So usually you will see people quoting the price at eg spot + 15% or spot + 500sgd etc.
Why do you have to pay for these premiums.
Unlike paper gold, the physical gold requires to be minted in the refinery, packed and deliver to various countries to be stored, wholesaled or retailed. Refineries buy back gold and silver from the scrap market (old jewellery, ore, dory bars etc) based on the daily spot prices and mint it into investment grade bars. Then all these minted bars are sold, packed and shipped to the various institutions, bullion banks and direct dealers.
The cost of minting and shipping is not cheap. The cost of minting a 100oz bar and 100 1oz coin is different as well as it requires more cost to mint the latter. Taxes have to be taken into consideration when buying your gold and silver as well. With Singapore tax of 7%, the min price u can buy is definitely above spot + 7% + (shipping and minting cost) + seller profits.
How come the premium of silver is so much higher than gold?
The cost of minting and shipping 1kg of gold and 1kg of silver is about the same. So let’s take the minting cost and shipping cost to be 300sgd per kg. Based on the spot price if gold is $60000 per kg and silver is $1500 per kg. The percentage of cost of the shipping + minting to the cost of the product itself is 300/60000 = 0.5% for gold and 300/1500 = 20% for silver. This show why silver has been selling at such a high premium because from this calculation we can see that the base price for gold is spot+7%(tax)+0.5% and silver will be spot+7%(tax)+20%.
So if silver premium is so high now would it be good to wait until the premium decreases?
High base premium is actually a good thing as it shows that the metal is still cheap. Anyway I have always said that any price below 100usd per Oz for silver is still dirt cheap. Imagine if you are given a chance to turn back time to many years ago when you can buy gold cheap and premium was very high at about 20 %. Will you do it? It values have already increases many folds so what is the 20% premium compared to a 300 to 400% returns. Premium of silver was even higher at up to 100% last time and look at how much the price have rised now.
What is the difference between buying from banks, pawnshop, goldsmith, direct dealers and refineries?
Refineries only supply to direct dealers, institution or bullion banks with track record of selling gold for the past many years and are consistently taking in very large orders. They do not sell to the mass market and even if they do the price will not be any cheaper than the retail market.
Direct dealers are like the country representative for the refineries and they supply to the goldsmith at low profit margin but at high and consistent volume. Through direct dealers you can buy gold at the best pricing but you need to know the channel to buy from them. Usually they don entertain the common buyer unless you know them personally.
Goldsmith sells at a very high profit margin due to the fact that they need to pay for the shop rental, workers, workmanship etc.
Pawnshop sell at a much cheaper price compared to the goldsmith but at higher price from the direct dealers as they buyback at below low price and sells without the tax.
Banks sell at price slightly higher than the direct dealers but they are always out of stock and will advise buyer to get the paper gold and silver instead. Banks also don’t hold or sell any physical silver. So the paper are backed with nothing even when you pay them a maintenance and storage fee.
I decided to write this article to explain to people about the premium in gold and silver because I have been getting too many enquires on this topic lately. People need to know what they are paying for and how all these premiums are calculated. Below I will answer some of the most common questions that people ask me.
What are premiums?
Gold and silver price are measured in spot. Spot price can be found is www.goldprice.org or www.kitco.com/market/ which shows the current paper price for gold and silver now. Premiums are the extra amount of money you pay for holding the physical gold and silver instead of holding an imaginary entity like those paper gold. If you don’t hold it you don’t own it. So usually you will see people quoting the price at eg spot + 15% or spot + 500sgd etc.
Why do you have to pay for these premiums.
Unlike paper gold, the physical gold requires to be minted in the refinery, packed and deliver to various countries to be stored, wholesaled or retailed. Refineries buy back gold and silver from the scrap market (old jewellery, ore, dory bars etc) based on the daily spot prices and mint it into investment grade bars. Then all these minted bars are sold, packed and shipped to the various institutions, bullion banks and direct dealers.
The cost of minting and shipping is not cheap. The cost of minting a 100oz bar and 100 1oz coin is different as well as it requires more cost to mint the latter. Taxes have to be taken into consideration when buying your gold and silver as well. With Singapore tax of 7%, the min price u can buy is definitely above spot + 7% + (shipping and minting cost) + seller profits.
How come the premium of silver is so much higher than gold?
The cost of minting and shipping 1kg of gold and 1kg of silver is about the same. So let’s take the minting cost and shipping cost to be 300sgd per kg. Based on the spot price if gold is $60000 per kg and silver is $1500 per kg. The percentage of cost of the shipping + minting to the cost of the product itself is 300/60000 = 0.5% for gold and 300/1500 = 20% for silver. This show why silver has been selling at such a high premium because from this calculation we can see that the base price for gold is spot+7%(tax)+0.5% and silver will be spot+7%(tax)+20%.
So if silver premium is so high now would it be good to wait until the premium decreases?
High base premium is actually a good thing as it shows that the metal is still cheap. Anyway I have always said that any price below 100usd per Oz for silver is still dirt cheap. Imagine if you are given a chance to turn back time to many years ago when you can buy gold cheap and premium was very high at about 20 %. Will you do it? It values have already increases many folds so what is the 20% premium compared to a 300 to 400% returns. Premium of silver was even higher at up to 100% last time and look at how much the price have rised now.
What is the difference between buying from banks, pawnshop, goldsmith, direct dealers and refineries?
Refineries only supply to direct dealers, institution or bullion banks with track record of selling gold for the past many years and are consistently taking in very large orders. They do not sell to the mass market and even if they do the price will not be any cheaper than the retail market.
Direct dealers are like the country representative for the refineries and they supply to the goldsmith at low profit margin but at high and consistent volume. Through direct dealers you can buy gold at the best pricing but you need to know the channel to buy from them. Usually they don entertain the common buyer unless you know them personally.
Goldsmith sells at a very high profit margin due to the fact that they need to pay for the shop rental, workers, workmanship etc.
Pawnshop sell at a much cheaper price compared to the goldsmith but at higher price from the direct dealers as they buyback at below low price and sells without the tax.
Banks sell at price slightly higher than the direct dealers but they are always out of stock and will advise buyer to get the paper gold and silver instead. Banks also don’t hold or sell any physical silver. So the paper are backed with nothing even when you pay them a maintenance and storage fee.
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