Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
How to Trade Binance Vanilla Options for the First Time on Bitcoin Crypto's - 2nd Aug 21
From vaccine inequality to economic apartheid - 2nd Aug 21
Stock Market Intermediate Top Reached - 2nd Aug 21
Gold at a Crossroads of Hawkish Fed and High Inflation - 2nd Aug 21
Bitcoin, Crypto Market Black Swans from Google to Obsolescence - 1st Aug 21
Gold Stocks Autumn Rally - 1st Aug 21
Earn Upto 6% Interest Rate on USD Cash Deposits with Binance Crypto Exchange USDC amd BUSD - 1st Aug 21
Vuze XR VR 3D Camera Takes Near 2 Minutes to Turn On, Buggy Firmware - 1st Aug 21
Sun EXPLODES! Goes SuperNova! Will Any planets Survive? Jupiter? Pluto? - 1st Aug 21
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

A Hard Look at Gold, Silver Premiums

Commodities / Gold and Silver 2010 Mar 23, 2010 - 10:16 AM GMT

By: Tarek_Saab

Commodities

Best Financial Markets Analysis ArticleLost in the daily commentary about gold and silver prices is the actual cost of taking possession of these precious metals. Unless you trade in paper GLD or SLV, or you store your bullion in overseas vaults with companies like Goldmoney, the actual cost to purchase gold and silver can diverge from the COMEX spot price by as much as 36% (as I will show below). We have analyzed the premiums for these two monetary metals over the past year and a half, and we hope to offer some perspective on "real" market prices.


For the benefit of novice investors: Spot price is the settlement price per ounce of gold and silver for future delivery through the Commodities Exchange (COMEX). This price fluctuates by the minute, like stocks on the NY Stock Exchange. The "spot" is the price referenced by talking heads when referring to the "price of gold" or the "price of silver," etc, and it is a value used by dealers when setting bullion prices. The premium per ounce is the markup charged by mints and dealers when trading consumer-grade bullion (i.e. anything smaller than 400 oz gold bars). Together, these two numbers comprise the total cost of purchasing precious metals in physical form. The same definitions apply to platinum and palladium.

In contrast to the spot price, where there is a clear historical price record, minimal reliable information exists concerning fluctuations in metals premiums. This is because measuring accurate market premiums is an inexact science and highly labor-intensive, as premiums vary considerably by mint, supplier, product, weight, order volume, and of course, demand. As part of our ongoing company research, we analyze market moves in premiums by using very basic criteria, focusing mostly on high volume dealers and popular products to paint a broad picture of price movements. Note: These are approximations only.

GOLD

Data through March 20th

For the purposes of this study, we have included only the most popular gold coins: the one ounce (by gold weight) US Mint Eagles, Royal Canadian Mint Maple Leafs, and the grandfather of them all, the South African Krugerrand. Over the past seventeen months, gold's average spot price has been $975.15, and its average premium per ounce for an order of twenty ounces has been $58.18. The percentage of premium to total (again, defined as 'spot' plus 'premium') is 5.6%. This percentage peaked in November of 2008 at 9.4% ($760.86 spot + $79 average premium) and currently sits at 4.2% ($1,119.85 spot + $49 average premium).

Some will argue that ancillary costs such as shipping and insurance should be factored into the total, but since the industry standard is "free shipping and insurance," these costs are not measured.



SILVER: GOVERNMENT ISSUE COINS

Silver prices vary considerably by marking. Private mints producing silver "rounds" compete for market share with government mints producing silver "coins." Additionally, the popularity of larger forms of silver such as 100 oz and 1,000 oz bars causes the silver market to vary more widely than the gold market.

We have focused specifically on the premiums for one ounce coins, and the chart below highlights the two most popular government coins: the US Mint Eagles and Royal Canadian Mint Maple Leafs.

Over the past seventeen months, silver's average monthly spot price has been $14.51, while the average premium for an order of 500 ounces of government coins has been $3.53. The percentage of premium to total is 19.5%. This percentage peaked in December of 2008 at a whopping 36.8% ($10.28 spot + $5.99 average premium) and currently sits at 12.9% ($17.17 spot + $2.55 average premium).

The incredible spike in premiums at the end of 2008 and into 2009 caused many investors to "arbitrage" their government coins. Investors would sell their coins and repurchase cheaper, private issue silver rounds. In doing so, they increased their total silver holdings without any additional cash outlay.



SILVER: PRIVATE MINT

Private issue mints offer a seemingly endless variety of products: from well-known rounds like Sunshine, Silvertowne, and A-Mark, to the no-name brands minting everything from Obama heads to bar mitzvah designs. If it weighs one troy ounce and its purity is .999 or greater, anything silver falls into this category.

As mentioned above, silver's average monthly spot price has been $14.51 over the past seventeen months. The average premium for an order of 500 silver rounds has been $1.87. The percentage of premium to total is 11.4%. This percentage peaked in December of 2008 at 24% ($10.28 spot + $3.25 average premium) and currently sits at 6.0% ($17.17 spot + $1.09 average premium).



CONCLUSION

Several conclusions may be drawn from the data above:

-Gold offers the best premium to total cost ratio. Following this ratio exclusively, gold is a more conservative investment than silver. Similar to spot price movements, gold's premiums fluctuate less dramatically than silver's, meaning one's investment is less beholden to upward movements in spot price in order to realize "profit."

-Silver's premiums fluctuate widely, spiking due to supply constraints at the mints and dropping when demand eases. This is especially true of government coins.

-The significant price difference in silver premiums between government coins and privately minted rounds opens arbitrage opportunities during large market disruptions, like in 2008.

If metals prices fall under deflationary pressure, expect buyers to place demand pressure on the markets - especially in silver - and the premiums to rise congruent with 2008 levels, especially with respect to government coins. Should hyperinflation ensue - a scenario I deem less likely in the near term - average buyers may be priced out of the market altogether.

'Til next time, that's my Saab Story.

By Tarek Saab

www.guardiancommodities.com

Tarek Saab is a former finalist on NBC's "The Apprentice" with Donald Trump. He is an international speaker, syndicated author, entrepreneur, and the President of Guardian Commodities. His website is www.guardiancommodities.com

© 2010 Copyright Tarek Saab - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in