What are Physical Premiums? Why are they important?

“Why is the premium for your Royal Canadian Mint Silver Bar 100oz more expensive than others?”

Lets face it, the above question has been asked by many precious metals investors out there looking to get the best value for their investments. And we totally understand that. Today, we will share with you a little of what goes on behind the scenes in the precious metals industry.

Price of a Physical Gold Bar = Market Spot Price + Physical Premium

This is how you calculate the total costs of your physical precious metals. Market price is easy enough to understand. That is the Loco London gold spot price that all bullion dealers internationally quote and refer to. (This is not true! Click here to find out why so?) So what is this “Physical Premium” about? Is it akin to “Workmanship” that is charged for jewellery?

Yes and No. Physical Premiums is not totally considered as workmanship per se.

The Physical Premium is the cost incurred when refineries cast the raw gold into the finished gold product forms, Ie coins/bars. When a distributor like GoldSilver Central purchases products directly from refineries, GSC pays this physical premium above the market spot price to the refinery in order to bring this product to Singapore. That being said, the physical premium includes other costs such as Storage costs, Insurance Costs and Delivery Costs. Thereafter, in order to run its business and earn some money, distributors typically add a margin within the premium and resell it to customers. For example, the costs for a Maple Leaf Silver Coin is US$1.80, GSC sells it at US$1.90, netting a 10c gross profit.

Keeping this in mind, the following situations are commonplace.

A same product would have different physical premiums in different countries.

Depending on the manner in which distributors obtain their supply, there will be different costs as well. (Of course the best is to buy from Distributors who work directly with refineries)

Sometimes when Premiums increase, it may not be due to the distributor. (Even more unlikely in this environment of increasing competition where profit margins will only continue to shrink) It may also be due to refineries increasing their premiums prices.

So thats it, a short writeup on physical premiums. Stay tuned as we continue our updates, to walk with you as you embark on your precious metals investing journey.

PS: Silver Prices have increased significantly over the past few months. We have been tracking the Royal Canadian Mint Silver Bar 100oz and their premiums have increased steadily since November last year. No telling if it will continue to increase.