Did you check current premium rates being observed at your local retail establishments for precious metals? Specifically, the premiums applied to Krugerrand, Maple Leaf, and American Eagle coins are crazy high. It has come to my attention that the present premiums are set at $140 above spot for Krugerrands and $175 above spot for Maple Leafs and American Eagles. In contrast, just last week, the premiums stood at $110 for Krugerrands and $140 for Maple Leafs and American Eagles.
Right now, gold is low but premium is high.
The premium rates for silver coins differ, with Silver Eagles commanding a premium of $9 over spot, rounds at $5 over spot, and constitutional silver at 20 times face value, while half dollars are priced at 21 times face value. I am interested in learning about your experiences in your respective regions and your thoughts on whether these premiums are likely to increase, as they did in the past when prices experienced significant declines in October and March.
Why premiums on gold are so high?
Premium get up when gold price gets down. It is essential to acknowledge that dealers operate with a primary objective of generating profits rather than offering financial advice. Historical data from the 1990s reveals that, even as gold prices dipped below $400, $380, and subsequently below $360, the pricing strategies employed by retail establishments exhibited minimal adjustments. While dealers adapt the prices, they are willing to pay for gold in response to market dynamics, they seldom modify their selling prices.
When gold price stabilizes, premium get down. Please note there exists a lower limit to how low premiums can go, and during periods of declining spot prices, premiums tend to rise. This phenomenon results in an increased spread when prices experience significant downward shifts. Assuming that prices stabilize at their current levels, there is a likelihood that premiums will gradually decrease. To illustrate, consider the case of a retailer from which I previously procured gold. Prior to the recent price drop, this retailer was charging a premium of $50 over spot for Lady Fortuna coins, but now the premium has surged to $100 over spot.
With regard to large online precious metals sellers, one may wonder about their responsiveness to declining spot prices. Are they retaining previously purchased inventory acquired at higher price points, or do they procure inventory on a just-in-time basis, akin to modern logistics practices? This approach is fundamentally rooted in the cost of acquisition. In certain instances, sellers may have procured inventory at, say, $1950 per ounce of gold with the intention to sell it at $2000 per ounce. However, if the spot price declines to $1820, it becomes challenging to find buyers willing to purchase at $2000, with most preferring a price closer to $1900. Consequently, the retailer may opt to sell at $1900, incurring a $50 loss per ounce, while concurrently acquiring new inventory at the lower spot price of $1820. As spot prices rebound, they can once again command a selling price of $2000, thereby offsetting the previous loss and potentially realizing additional profit.
Some dealers are notorious to rise premiums quite quicky. It is worth mentioning that many precious metals dealers employ hedging strategies, which enable them to remain competitive and profitable regardless of market fluctuations. This is also a contributing factor to why individuals sometimes observe disparities between the spot prices reported by dealers and those presented on platforms such as Kitco. In actuality, the dealers may be referencing the spot prices dictated by their hedging contracts, which diverge from the standard spot price as they are derived from futures contracts.
In addition to their responsive nature, dealers can also capitalize on market opportunities, strategically pricing their products just below the rates charged by dealers who do not employ hedging strategies and are consequently compelled to levy higher premiums. Notably, APMEX is renowned for its practice of charging notably high premiums. Currently, Britannia coins appear to offer the most favorable premiums, although it is important to verify these figures regularly on platforms like findbullionprices, as they are subject to change.
As a practical suggestion, I would encourage you to consider contacting Nationwide Coins, as they may be able to provide American Eagle coins at or near the spot price, and there is even a possibility that they may include a free American Silver Eagle coin with your purchase.
Should i buy gold today with such high premium?
Regarding the question of purchasing precious metals with a high premium, it is essential to recognize that coins with premiums often retain some of their added value. For instance, take the American Gold Eagle, a coin that typically commands a premium due to strong demand. It is highly improbable that one would encounter a seller willing to part with this coin at the spot price. The premium attached to such coins is primarily driven by market demand, and their popularity in the United States ensures that sellers can generally recoup a portion of the premium when selling these coins.
Nevertheless, it is prudent to exercise caution when purchasing precious metals with the sole intent of investment or wealth preservation. Not all coins with premiums will necessarily sustain their added value over time. Especially for more exotic or less widely accepted coins, it can be challenging to find buyers willing to pay a substantial premium in a relatively short time frame. Thus, it is advisable to carefully consider your objectives when acquiring such coins and to avoid relying solely on the expectation of selling them at a premium in the future.
Find alternative way to buy and sell gold: Check Reddit and Facebook group.
It is worth noting that individuals do indeed sell precious metals for prices exceeding the spot price on a daily basis. This practice is particularly common on platforms like eBay, Reddit, and Facebook. In such cases, it is highly unlikely that gold bullion, such as Gold Buffaloes, would be sold at the spot price. Buyers are often willing to pay a premium for these coins. Occasionally, one may come across particularly attractive deals on Reddit, where premiums can be less than 10%.