What Is A Premium?
When looking to purchase a physical gold coin or bullion, one of the key considerations is cost. The spot price for gold is going to be the same anywhere in the world. Spot values for gold can vary based on a wide variety of factors. These factors may include dollar strength or weakness, sovereign debt levels, risk tolerance or aversion, stock market strength or weakness and more. Why then might the price of the same gold bar or coin be different from one dealer to the next? The answer is the premium.
A dealer premium is the amount of money added to the price of gold by the dealer. Premiums ensure that dealers make a profit when selling gold coins or bars. These premiums not only
cover the dealer’s cost and profit, however, but also cover other costs such as manufacturing, transportation or distribution and more. Collectibility can also have a major influence on premiums. The more rare a coin is, for example, the higher the potential premium on it may be.
Numismatic, or collectible coins, are often best left to professionals. The large premiums on these coins can fluctuate wildly, potentially producing profits but also possibly fueling significant losses. The average bullion investor today may be far better served by sticking with basic gold coins and bars with smaller premiums, thus providing more actual gold for the dollar.
Why are premiums so important when buying gold coins or bullion? Because they have a direct impact on how much you spend. The more you pay in dealer premiums, the less actual gold you are going to get for a specified amount of investment capital. If an investor is looking to purchase 50 gold coins, for example, he or she should definitely compare dealer premiums. If dealer A is charging $10 over spot per coin, while dealer B is charging $20 over spot per coin, then the investor can save $500 by purchasing the gold coins from dealer B. That $500 savings could be sued to buy more coins or gold bars, thus allowing the investor to obtain more actual ounces of gold for the money.
With so many metals dealers now doing most, if not all, of their business online, comparison shopping has never been easier. Dealers will usually post the cost per coin or bar including any dealer premiums attached to them. Many dealers will also offer discounts, i.e. you pay a premium of $10 over spot on the first 20 coins, then $8.99 over spot on the next 20 coins and so on. Put simply, the larger the purchase is, the more you may be able to save on premiums and total cost.
When comparing dealer premiums, take your time and make sure you compare apples to apples. A dealer that offers shipping included, albeit with a slightly higher premium, may in fact be a better deal than another dealer offering a lower premium with substantial additional shipping costs. Always keep in mind that the entire idea is to obtain as much physical gold as possible at the best price possible.