What are Silver Premiums and Spot Prices And Why Do They Matter?

If you have been looking for ways to sell silver bullion then you have probably come across the term ”spot price”. It might seem like the most important thing to understand about selling or buying bullion involves knowing and learning more about this spot price, the scrap, and the melting value. Note that the spot price is only just 80 or so percent of the actual price of the bullion. The rest is made up by the premium.

Calculating the premium is not a complicated process, making sure that you are buying bullion with the lowest premiums might be tricky.

Spot price vs. bullion premium?

Spot Price: The current price of an ounce of silver exchanged on the commodities on the day, month, and time of sale.

Premium: The extra price charged over and above the current spot price.

There are five factors that affect the premiums that are charged on bullion products:

– Market demand and supply

– Global and local economic conditions
– The amount of bullion offered to bidders
– Type of products being sold
– The seller’s objectives

Market Demand & Supply

Demand and supply is a major factor. A bullion dealer like any other business has to balance what comes in with what sells best. Too much inventory that doesn’t get bought as fast as it should is costly. if the inventory is too low, a bullion dealer will have angry customers. A good dealer will be able to balance the supply and demand dynamics. However, the silver market can affect the bullion supply and impact premiums.

Global and local economic conditions

Depending on the magnitude and size of market events, the price of bullion may be affected.
For instance, a country whose local currency is tumbling like Venezuela. Locals might choose to increase to purchase bullion in a bid to protect whatever they have. Globally, an event such as the 2008 economic crisis would also cause people to hedge their risks and protect whatever wealth they have. In this case, demand will go high and premiums will go up too.

The amount of bullion offered

Every transaction between a bullion dealer and a customer costs money. You have to consider overhead costs and transaction costs. High-volume transactions tend to have low premiums than small ones. This is because it cost mints more to make 100 bullion coins of 1 oz than it does to make a single 100 oz silver bullion bar. How does this affect a person selling silver bullion? You get more for your 100 oz coins of 1 ounce each than for a silver bar with a similar weight.

Type of Bullion being sold

When talking of bullion we are talking of precious metal of the highest quality made by government mints, however, there are some popular mints that were made by private mints. The origin of the bullion also has an impact on its price. Sometimes government mints will work with private mints to produce or at least sell the coins. For example, The U.S Mint which produces the popular American Silver Eagle Coins charges $2 over spot for these coins however a private company or dealer might sell the coins for half the premium when bought in bulk.

Seller’s objectives

Anyone trying to sell silver bullion will want to get the best price for it whether they are a big silver bullion dealer or a private dealer. However, just because you believe that you should be getting a large premium for your silver does not mean you will get it especially if the market demands it.

In an ideal situation, the bullion dealer and bullion seller have to find the right price equilibrium where they can both live with the final price making the transaction faster for the seller and maximising the profit for the dealer.

This might be more difficult than it sounds, a lot of factors have to align for the seller to get the best price and the dealer to make the most out of the transaction.

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