When considering a gold purchase, individuals typically turn to bullion dealers. These dealers’ price their gold products above the spot price, and this premium can vary widely, ranging from 2% to as much as 20%, depending on factors such as the brand and the type or collection of coins, ingots, or bars being purchased. This premium represents the profit margin for the bullion dealer, and in some cases, it can even exceed 20%.
However, the question that often remains hidden from the client’s view is the price at which the bullion dealer acquires the product. What are the actual margins involved, and where does the supply of gold come from? Let’s delve into these aspects, focusing specifically on international gold bars from refineries regulated by the London Bullion Market Association (LBMA), such as Valcambi, Argor-Heraeus, and PAMP. The LBMA is the authoritative organization overseeing the gold and silver market from an investment perspective, ensuring quality and integrity. For other precious metals like palladium and platinum, the London Platinum and Palladium Market (LPPM) serves as the regulatory body.
Now, let’s explore the three main sources of gold supply for bullion dealers:
- Fresh Bars Directly from Refineries: The primary source for bullion dealers is acquiring gold directly from LBMA-certified refineries. These refineries adhere to stringent quality standards, ensuring the purity of the gold product. When purchasing gold bars from such reputable refineries, bullion dealers typically pay a premium ranging from USD 1.50 to USD 3.20 per troy ounce, depending on the refinery. This premium translates to a purchase cost of spot +0.14% to spot +0.30%. Importantly, bullion dealers may end up paying more than these premiums, as refineries often set their own spot prices, which can be higher than the international spot price.
- Second Hand Gold and Recycled Gold: Bullion dealers can also obtain gold by buying back precious metals from clients. These “second-hand” bars may change hands multiple times and are usually acquired by dealers below the spot price, typically ranging from spot -2% to spot -10%. For instance, in the case of 100-gram bars, bullion dealers may sell them at a markup of spot +2% to +10% after purchasing them at a discount. Additionally, recycled gold from items like jewelry and electronic devices often undergoes refining to produce fresh bars, with bullion dealers typically paying around 10% to 20% less than the prevailing gold prices for such scraps.
- Discounted Gold: Individuals seeking significant quantities of gold (e.g., 50 kg) may inquire about discounted gold. While some claim to offer gold at a 30% discount, these transactions often involve high risks and potential scams, especially when originating from less-regulated markets like Africa. A safer approach is to explore direct purchases from mines, though this route is fraught with challenges. Bullion dealers must identify mines meeting LBMA standards and navigate risks such as operational and management issues, as well as fraud. Additionally, the process can be time-consuming, with delivery times ranging from six months to a year. Importantly, bullion dealers are generally reluctant to undertake such high-risk endeavors.
So, can an individual directly approach a refinery to purchase gold?
In general, refineries do not typically engage with individual clients and prefer to deal with companies due to compliance, KYC, and AML requirements. Even if you establish a company, the process of opening an account with refineries is lengthy and demanding, taking up to a year for approval. Minimum order requirements usually start at half a million dollars per transaction, with an annual total of 5 to 10 million dollars.
In essence, the process of acquiring gold involves several intermediaries, with bullion dealers acting as intermediaries between individuals and refineries, akin to how commercial banks serve as intermediaries between individuals and central banks when seeking credit. Comparing prices among dealers can indeed be challenging, as they constantly adjust their premiums. Therefore, finding the lowest price requires diligent tracking and research. Currently, based on your tracking, APMEX, JM Bullion, SD Bullion, Silver Gold Bull, Monument Metals, and Bold Precious Metals rank from highest to lowest in terms of gold prices for the products you are interested in.