The Basics of Buying and Selling Precious Metals
The Spot Price.
The term "SPOT" refers to the current delivery price on futures contracts for precious metals. In other words, if you want to buy physical metal and take immediate delivery, then the "Spot" price would apply. If you merely wanted to speculate on the metals and did not want to actually own the physical metal, then you could use the Futures Market to buy and sell metal on paper only. Paper Futures represent physical metal, but are very risky and not for the typical investor. We will not go deeply into that, but understand that if the market turns against you, you could lose ALL of your paper investment. On the other hand, by owning the physical metal themselves, you only make or lose money when you sell them. No one will call you for more margin money and if you don't like the current prices, you are not forced to sell it. You just hold on until you decide to sell the metal.
When you look in the business section of the newspaper or internet sites, you will often
see quotes like:
August 2021 Gold $xxxx.00
July 2022 Gold $xxxx.00
December 2022 Gold $xxxx.00
These are futures contracts for large amounts of metal where producers and heavy users of gold can "hedge" their positions for the future. As long as you sell your contract before it expires, you don't actually have to take possession of the metals. The nearest dated contract is the one that will be used to establish the "SPOT" price. There is often a small adjustment factor added to or subtracted from that month's futures to derive the SPOT price that the physical market will use. It seems complicated, but rest assured that you can always easily check the current spot price of gold or other precious metals on our website.
Now that we understand that the futures prices are only on paper and
that the Spot price is for actual buying and selling of the physical metals, how
do we know how much a particular gold coin will cost in relation to Spot? Now the Premium comes into play. What quantity of items, and of what
sized items, one is buying determines the Premium. Most government mints
that sell precious metals coins sell them in 4 or 5 sizes that range from
1/20 of an ounce, up to 1 full ounce. Common sense tells us that the cost to produce
ten small 1/10 ounce coins will be greater than the minting cost to produce
just one 1 ounce coin, even though we still end up with a net ounce of metal
either way. So for practical sake, buying the larger size coins gives you
the most metal for the money. The smaller coins are still useful though
for rounding an amount purchased up or down, for jewelry use, or perhaps
The premium is an amount over the current spot metal price that covers:
1. the government's cost to take a 100oz bar of gold and mint the coin, plus a profit for its trouble,
2. shipping & insurance to get that coin from the mint to us, and
3. our profit margin.
For example, the premium on one 1oz gold eagle coin would be approximately 6%-7% for a small purchase. The more you buy, the less has to be added to each coin, so the premium right now may be as little as 3.5% over the spot metal price in larger quantities (50 or 100 ounces).
On silver, the premium is usually expressed as a fixed amount over the Spot price. For instance, one 100oz silver bar may cost you $1.75 per ounce over the spot price. Buying twenty of the 100oz bars may cost you only $1.25 over spot per ounce.
It is important to note a couple of things:
The premium itself changes with market conditions just like the spot price changes, and there is no guarantee the premiums will always be there. There have been instances in time where we have sold Gold Eagle coins for spot. On other coins such as South African Krugerrands, there may be a negative premium called a "discount" to Spot. Even when there is a premium over Spot when you buy, you can expect less when you are selling coins because the spread between the Bid (buy) price and the Ask (sell) price is how dealers make their profit on the transaction. With Nashville Coin & Currency, Inc., there are no other fees, commissions or sales charges. Orders that are shipped out of the State of Tennessee have postage & insurance added on, and orders delivered within the borders of Tennessee will have sales tax added on. Otherwise, that's it.
Buying precious metals is easy and confidential. Selling metals is equally easy and usually just as confidential. Government Regulations only require metals dealers to report when a customer sells a certain large quantity of specific metal items that meet CFTC Futures Contract trading requirements. We will be happy to explain more about those certain limited items & quantities that would require reporting. Payments by Cash in amounts over $10,000 are reportable, where payments by Bank Wires and Checks are not.
For more particular questions or information, please contact us.
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