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What is premium over spot?

What is Premium Over Spot?

Every week we hear the question: What means is premium price over spot?” so it is time to make it easier for all.

Have you ever wondered how precious metals became some of the most valuable tangible things someone can own? How did they grow to the place of admiration and desire that it is today?

The history of precious metals and bullion trades dates back to 3,600 B.C., when Egyptians were the first to smelt gold. In 564 B.C. King Croesus of Lydia minted the first coins made from electrum, a natural alloy of silver and gold.

58 B.C saw the Romans using gold as a widespread monetary system. And thousands of years later, the value of gold still stands today.

The bullion exchange sector even has its own terminology for referring to market values. One of these terms you may have heard or seen is “premium over spot.” But what exactly does it mean?

 

What is a premium?

The premium over spot refers to the markup imposed on a specific bullion product above the current market value or price per ounce.

Simply put, if gold is currently trading at $5000 per ounce, but the gold coin you want to purchase is selling at $5100 per ounce, that means the premium is $100.

 

What influences the cost of precious metals?

Before a precious metal can even have a premium, it must first have a market value. But who sets the prices of these metals?

Well, the price is not determined by just one person or entity. In fact, the prices of gold are set in London and New York by several banks, an oversight committee, and a panel of internal and external members.

These bodies calculate the figures based on supply and demand. This helps establish averages for both the spot and the fixed prices.

Inflation, the amount of gold in the central bank reserves, and currency devaluation also play a part in helping to increase the price of precious metals. Here at EGR, we also consider additional factors when deciding our Premium: market share objectives, competitor strategies, and price equilibrium strategy.

Gold premiums may also be influenced by form and weight. The reason is simple: it costs a mint much more to produce, package and transport lighter gold bars. There is also more cost involved in baking fees, internal handling, and other costs associated with production.

Another factor that could influence price is something known as a “collector or Numismatic value” for gold coins. This is the price you can anticipate to receive if you sell a circulated, uncirculated, or proof coin. The value is determined by the coin’s scarcity, condition, and supply and demand.

To conclude, the price of precious metals, particularly gold, is influenced by a number of factors in the market. Knowing and keeping track of happenings in the market can help you know if you are paying a good price for your gold coins.

At EGR, we always aim to have the best price in the market, and we are also able to match the cost of an advertised product.

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