Spot Price, Premium Price and Numismatic Value
Understanding Spot Price, Premium Price and Numismatic Value
Buying Gold and Silver for many can be intimidating especially when first starting out. When you understand how the market price is determined, you will have a better idea of when you should invest or save for your future.
Understanding what the terms
Whether you are new to investing in Gold and Silver, a collector, or even someone who has dabbled in saving occasionally over the years, or as a hobby, this article should give you some much-needed insight.
Before my Dad passed away, he spent the last year of his life looking into gold and silver and finding ways to invest what little money he had left to provide a more secure financial future for his sons and grandsons.
As I listened to him on numerous occasions explain what 'insider' information he found out, I started researching and diving into things on my own.
Rekindling an 'old flame' I had of collecting, like my Dad, I started discovering how I could start creating a more sound future for myself as well as something to pass on to my sons and grandkids when my time had come.
Diving deeper and educating myself on the best way to buy gold and silver and what to look for - brought me to the terminology spot price, premium price, and the holy grail for us collectors - numismatic value.
How can I buy silver and gold at market price? Google it I thought - but unfortunately paid advertisement and the "we have the best price in town" blasted me on the first page.
I knew that buying gold and silver was a good idea. But I wanted to make sure that I bought at the right price and the company I purchased from was a legitimate source and had some way to prove it.
Occasionally I would come across someone selling slightly below market price, however, most precious metals dealers usually charge more than the market price.
So much for the simple just look here, click here, and off we go - you are on your way to a secure future.
As I dove deeper into the terms for gold and silver -spot price, premium, and numismatic. I found it interesting how the precious metals industry does work.
In marketing, everything that you buy or sell is worth what someone is willing to pay for it. It's not necessarily worth that price, but the value is what someone is 'willing to pay' for that item.
The physical effort it costs someone to make something is factored in by the demand for that item.
Simply put Item Cost = (Cost of the supply) x (market demand)
Gold and silver both follow the same equation and determine what you will have to pay in order to own these sought-after precious metals.
A quick search on Google brought up this definition of spot price: "The spot price is the current price in the marketplace at which a given asset—such as a security, commodity, or currency—can be bought or sold for immediate delivery"
Stocks, bonds, commodities, currencies and everything bought and sold on the market has a spot price attached to it.
From day to day the various markets and exchanges will affect the spot price.
Every human effort put into gold and silver is incorporated into the market price.
Finding the gold and silver, extracting it out of the ground, and purifying it all go into that price.
If the market price didn't cover that - there would be no mines to supply the precious metals.
The Spot Price is equivalent to the human effort to supply the precious metals to meet the market demands.
The final step is turning the raw ore into a form that we as consumers can exchange and trust. Any type of raw bullion needs to be minted into a bar or coin. Also, take into consideration the content of the precious metal and how refined it actually is. Then the bullion or coin needs to be distributed through the supply chain (sometimes several handlers) to you and I who are looking to purchase.
Human effort and integrity come into play when minting the precious metal into a coin and verifying its purity.
The price we pay to have the precious metal minted into a form we can trust and use is called a Premium.
Premium is equivalent to the human effort required to mint and distribute the precious metals to meet market demands.
When someone wants to purchase physical gold and silver and have it physically sent to them, a bullion premium is added. There are other terms often associated with premium (i.e. 'mark-up', and 'top-up' may be used)
Premiums apply to both bullions (bars) and coins.
The production of both coins and bars comes with a cost. Included in this cost are also transportation, insurance, handling, and the profit margin from the seller.
All of these factor into the cost covered with the term "Premium" when you buy physical gold and silver. This is what is paid in addition to the global spot market price.
the above cost factors are covered by the premium, that a buyer of physical gold needs to pay to the seller, on top of the global gold spot market price.
The final factor to consider before buying gold and silver is called the "Numismatic Value".
Our trusty check on Google again gave us this definition of numismatic value:
"Numismatic value is the value a seller receives for the sale of a collectible coin. This value is determined by the coin's quality, rarity, and demand."
Numismatic value is the price you can reasonably expect to receive through the sale of a circulated, uncirculated, or proof coin from your collection.
Coins with a grade of 70 are considered flawless.
Supply is another factor used to assign numismatic value.
The value of the collectible gold or silver coin increases depending on the rarity and the demand for it.
The more rare and higher the demand for the collectible will determine the price.
Numismatic value is the equivalent to the collectible value based on a specific coin's quality and rareness.
When buying gold and silver, understanding
Understanding these 3 basic factors will allow you to make the right choices when investing in yourself or saving for your future, by investing in precious metals.
The value of investing in gold and silver has always been understood.
For centuries Gold has always been one of the true tangible forms of wealth.
With these unprecedented times that we live in, investing in precious metals should be a consideration for everyone, even for the sake of diversifying to provide yourself and your family with a more secure financial future.
As always my best to you for continued success and happiness in business and in life.
Founder of SilverAndGoldSolutions