Spot price, premium and spread – the three figures you should know
Three words that keep coming back wherever precious metal is concerned. Anyone who keeps them apart understands at once why a coin costs more than a bar.
Spot price: the price of the material itself
The spot price is the price for immediate delivery of pure metal on the world market. No coin, no bar, no brand – only the material, in dollars per troy ounce.
That is the figure in the news when ‘the gold price’ is mentioned, and it is the starting point of every calculation. Everything you pay or receive after that is the spot price plus or minus something.
Premium: what is added on when buying
Anyone who buys a gold coin pays more than the spot price. That difference is called the premium. It covers the striking of the coin, the packaging, the transport, the insurance and the dealer’s margin.
The premium depends strongly on the format and on demand. Roughly:
- Bars of one kilo – the lowest premium, often 1 to 2 per cent. Plenty of material, little working.
- Bars of 100 grams – slightly higher, roughly 2 to 4 per cent.
- Bullion coins of 1 troy ounce (Krugerrand, Maple Leaf, Philharmoniker) – usually 3 to 7 per cent.
- Small coins of 1/10 ounce – sometimes 10 per cent or more, because the costs per coin stay much the same while there is far less gold in them.
Spread: the difference between buying and selling
The spread is the difference between the price at which you can buy and the price at which you can sell at that same moment. Every dealer has one, in every market – your bank does too, with foreign currency.
For you as a seller this is the figure that counts. A narrow spread means you are close to the spot price. With directly tradeable material – bars, common bullion coins – that spread is narrowest, because we can pass the piece on without any working.
With old gold the spread is wider. Between a mixed parcel of jewellery and a tradeable bar sit melting, separating and assaying, and those steps cost money.
Why our price pages currently show the bare material value. The margin sits per category in our system and is adjustable. With it set to zero you see rate × fineness × weight – the upper limit of what the material is worth. What you actually receive we establish at the table.
A worked example from start to finish
Suppose: a Krugerrand of 1 troy ounce, with gold at 114.50 euros per gram.
- The coin contains 31.1035 grams of fine gold (the coin itself weighs more, because of the copper in the alloy).
- Material value: 31.1035 × 114.50 = 3,561 euros.
- If you once bought it with a 5% premium, you paid roughly 3,739 euros at the time, at the same spot price.
- If you sell now, the material value is the starting point and our margin comes off it.
- Troy ounce, gram and carat: the units side by sideThe world market reckons in troy ounces, your scales in grams and your jewellery in carats. With these three conversions you can check any offer yourself.Read on
- Krugerrand, Maple Leaf or Philharmonic: which one sells fastest?All three contain exactly one troy ounce of fine gold. What you get for them still differs – that lies in how well known they are, the fineness and how easily they scratch.Read on
- How does a buyer check whether gold is real?Magnet, acid test, specific gravity and X-ray. What each method does and does not prove – and why a stamp alone is never enough.Read on
Questions about spot price, premium and spread
Do I get back the premium I paid when buying?
Usually not in full. The premium covers costs that have already been incurred: striking, packing and transporting. With rare or sought-after coins part of it can come back, but do not count on that with common bullion coins.
Why is the price per gram higher for a bar than for a piece of jewellery?
Because a bar is already the end product. A piece of jewellery still has to be melted, separated and assayed before it is tradeable again, and those steps cost money. That difference in processing is exactly what you see back in the spread.
Is the spot price the same everywhere?
Virtually. There are small differences between trading platforms, but they lie well under one per cent. We take the midpoint between bid and ask from our rate supplier, so that neither side of the market is favoured over the other.
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