How much do you know about silver and gold premiums? Do you know how to spot a fair premium and what causes gold prices to rise and fall? If you’re planning to invest in gold bullion bars or coins, then you need to know the factors that highly affect the price of gold bullion. The spot price is the current price of gold per ounce that day in international selling markets.
⦁ Economic conditions – This means both internationally and locally. If there is a financial crisis worldwide like in 2008 then that would likely cause premiums to rise because of the increase needed. However, if there is only one gold bullion dealer in a smaller town, they’d have to set their prices carefully because of the fear of setting them too high and driving customers away but wanting to make a profit too.
⦁ Supply and demand – This is the biggest factor as gold dealers need to make a profit. If bullion dealers have too much in stock, they often raise their prices, but if they don’t have enough gold bars or gold coins in stock, customers may walk away angry or frustrated. The seasons may play a part as well as it is often more beneficial to buy gold bullion in the summer when some sellers lower prices to attract new investors.
⦁ Volume being sold – Some of these gold dealers is a business trying to stay successful and they need to account for overhead charges, employees, and processing when pricing their supply. This means that often a larger bullion bar may have a lower premium than a single gold coin since they tend to spread costs out more evenly among larger amounts.
⦁ Type and popularity of Bullion – This especially pertains to bullion coins. Certain gold bullion coins are extremely popular, such as the Australian Gold Kangaroos, the Chinese Gold Pandas, or the American Gold Eagles. These popular coins may have pricier premiums because of their popularity so you may want to stick to other means of bullion for your financial portfolio and collect those for other reasons.
⦁ The seller’s objectives – It doesn’t matter if the seller is the only dealer in town or if they’re part of a large corporation, they’re going to aim to get the best price for their gold bullion. Dealers mainly factor in their competitors’ prices, as well as setting the “best price,” so that it’s high enough where they make a profit but not too high where customers go elsewhere. However, in the real world, it doesn’t always work out that way; and sometimes, you can negotiate with a dealer to lower their price.
The formula for calculating the premium involves taking the price of the gold bullion bar or coin and subtracting the spot price and then dividing it by the spot price. If it’s fewer than 10 percent after taking the above factors into consideration, you’ve found a good deal.