How silver and gold premiums are calculated?

The price that you can expect to pay when you buy gold bullion depends on the spot price of gold and the premium. The spot price can be defined as the price of an ounce of gold as dictated by global commodity markets. The premium on the other hand is the additional amount you have to add to the spot price when.  For anyone buying gold, it is important to understand what affects the premium. Some of the factors that play a role in the final price of the precious metal include:

·      The current supply and demand conditions

·      The amount of the metal being offered

·      The type of precious metal being sold

·      The objectives of the precious dealer

·      Supply and demand of precious metals

The supply and demand of gold bullion has a high impact on the premiums. Remember that precious metal dealers are also looking for some way to actively balance inventory and profitability. It’s a delicate balance but seasoned, well-established dealers will know how to balance things.

Having more product than you can move can be means higher costs. You don’t want to run out of inventory means angry customers frustrated by the fact that they can’t get what they are looking for. Inventory fluctuations affect bullion markets angry customers.

Economic conditions

The price of precious metals can be affected by economic conditions. It also matters where you buy your bullion. For instance, a bullion dealer in a small town might charge a higher premium than a bullion dealer Melbourne because he has no competition.

Premiums can also go up because of depreciating currencies. Take a country like Venezuela where the currency is virtually worthless. A lot of people might buy more gold but this also a higher premium.

One other reason for premiums to be high can be attributed to financial crises like theglobaal financial crisis of 2008.

Volumes

Every bullion dealer Melbourne has to factor in other costs to every transaction made. This will include overhead costs as well as fees. A transaction of 1 oz gold can have the same transaction price of 1,000 oz.  When buying large volumes, you should consider the spreads. Premiums tend to be low for high-volume costs.

There is also a large difference in the premiums charged for government coins and private coins. For instance, for one of the most popular government coins, the American Gold Eagle, a premium of 3% above the spot price by a government mint but a private mint or dealer might charge a different premium. Whether you are dealing with a large dealer or a small one, you should always keep in mind that every dealer is looking to realise a good profit from every transaction they enter into.

The price point requires some finesse. It shouldn’t be too high for buyers to take their business elsewhere. However if the dealer sets his prices too low, he may sell out his inventory without making enough profit.

Price composition

When silver and gold markets experience an unexpected increase in the demand 80 to 95 percent of the price is created from the spot price. Foe gold, spot prices account for 95 to 98 percent of the price of gold.

By zainliaquat10

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