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Why You Can’t Buy Precious Metals At Their Spot Price Explained

Derek Wolfe

Updated: November 18, 2022

buy precious metals spot price
Editor’s Note:

EDITOR'S NOTE: Investors new to gold and silver are probably wondering why they can't buy precious metals at the spot price. It’s a fair question and one that the article below answers. When it comes to buying physical precious metals coins, there’s more to quality than the gold content. Purity is an important factor, but when it comes to highly-valued coins, we’re entering the realm of numismatics, from design, issuance, potential rarity, and all of the costs that go into production. So, what is a “fair price” for gold and silver coins and where might you find it? These are all important questions, the answers to which every precious metals investor must know. And most of these questions are answered below.

Wouldn’t it just be grand to buy gold or silver at spot price? Think about that pile of metals in your vault growing ever higher, all at the price of what the metal is really worth. Eliminate the middleman — no numismatic premiums. And all the while that silver or gold keeps appreciating in value day after day, month after month, year after year.

Unfortunately, anyone who says they know how to buy at spot price is either lying or mistaken.

So, why can’t you buy precious metals at their spot price (melt value)?

Why do you need to pay dollars over spot to acquire a precious metal bar, round, or coin? It’s not like you’re collecting those pieces for their rarity or artistic merits, right? Buy it, store it, sell it, make your money, and move on.

Congressman Demands Answers From US Mint About Silver Eagle Program

Source: Coin Week

Of course, everyone wants a deal. But for some stackers, buying gold and silver at spot price isn’t necessarily about saving a dollar or two on an American Eagle. Many are prospectors at heart, hunters in spirit. They want the “prize” of obtaining a chunk of precious metal at its spot value, without paying the extra premium. It’s less a matter of greed and more about a mindset, a particular type of outside-the-box outlook on life. There may well be a correlation between this philosophy and the fact that a significant number of stackers also identify themselves as survivalists, prepared for whatever this ever-changing world throws their way.

Bottom Line: The price of a gold or silver product includes overhead costs, manufacturing costs, and labor costs—not just the melt value of the metal.

But why pay more for silver and gold than what the bullion ticker says it’s worth?

Ultimately, it comes down to the cost of doing business. Coin dealers and bullion brokers are financially unable to both buy your bullion at spot price and sell it at spot price, too. That would be an unsustainable business model—businesses need to make a profit. And what’s more, they need to pay the overhead, including rent or mortgage, electric, gas, marketing, payroll, insurance, and—of course—earn some profit, too.

You may have heard the old saying, “There’s no Santa Claus in numismatics.” Of course, it’s a phrase that means you’re not just going to get a bunch of free deals in the arena of buying and selling coins. Everyone wants to earn their share. That’s why stackers do what they do, too. However, this is not to say you can’t find an occasional deal when buying bullion.

Why You Can't Buy Gold or Silver At Spot Price

Source: Coin Week

Many bullion dealers offer silver starter packages that contain 10 to 20 ounces of silver at the price of spot. Other dealers will sell a current-year American Silver Eagle at spot—or at a much lower price than fair market value anyway. But there’s a catch. They are usually one-time offers for new customers only. They’re offers that many in the business world call “loss leaders”. The strategy behind this is to build a client base by selling silver coins or other bullion products at prices below the retail market rate. Then, once the customer is established, they charge the “regular” price.

This sales practice isn’t unique to bullion. You probably see it every day. Remember the Columbia House ads in the 1980s and ‘90s that sold 12 cassette tapes or CDs for a penny? How about those CD-ROMs you may have gotten in the mail years back offering 50 hours of free internet from AOL? That first-month-free rental apartment or storage unit? How about those specials at the local fast-food chain where you pay full-price for a sandwich and get free fries and a drink?

These are all types of loss-leader specials. But you can’t keep getting those free fries and drinks forever. At some point, you’re going to pay for them. And that’s the case with paying spot silver prices through an advertisement. There’s no Santa Claus in bullion, either.

In fact, if you sign up for one of those introductory deals where you get silver coins at spot, watch out. Get yourself into a contract situation of some type with one of those bullion outfits, and you may end up paying a lot more than you bargained for. Many of these companies can afford to offer these specials only because they charge much more than fair market value for their products. Remember, nothing is free! Not even silver coins.

Bear in mind that legitimate bullion dealers tend to operate on very thin profit margins. This means they have very little wiggle room to offer enticing discounts.

Bottom Line: Deals for discounted bullion are rare, and should be taken with a grain of salt.

So, What’s A Fair Price for Silver? And Where Should You Buy It?

What is a reasonable premium over spot for silver? The answers to these questions depend on what you’re buying. Silver bars carry the lowest premium, followed by silver rounds. Silver coins generally have the highest premiums. Quantity also counts. Usually, you see lower premiums on bulk orders. Bulk usually means something north of 10 ounces (or units), and typically closer to 100 ounces (or units) and up.

Why You Can't Buy Gold or Silver At Spot Price

Source: Coin Week

A fair premium for silver bars is typically 5% to 8%, while silver coins usually trade for 12% to 20% premiums above spot. Silver rounds register in between those premium points. Prices can be higher or lower depending on the mint that produced the round and its popularity in the marketplace.

Of course, you get what you pay for, too. Ordinarily, the more popular bars, rounds, and coins–the ones for which you may pay a slightly higher premium–are also more widely recognized and in demand. In other words, they’re generally more liquid and more likely to help fetch you a higher price when the time comes that you wish to sell your silver bullion.

You’ll want a dealer who has many connections with the best numismatic organizations. These include the American Numismatic AssociationCertified Coin ExchangeProfessional Coin Grading Service, and Numismatic Guaranty Corporation. And a dealer who is an authorized distributor for the world’s major mints. These include the Perth Mint, the Royal MintMonnaie de Paris, the Australian Mint, and of course, the United States Mint. After all, such well-affiliated dealers try hard to be the best at what they do. They are not going to want to ruin their reputations.

Finally, make sure you choose a dealer who offers a return policy and stands behind both their products and service. Peace of mind is what gold and silver stackers want—it’s why so many are stocking up for an emergency. Buying bars, rounds, and coins from a reputable dealer who offers their products at fair prices and also pays reasonable prices for the precious metals they buy from you is a winning combination—one in which you are always the winner.

Originally published on Coin Week.

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