Why the high premium?

[Divmad]

OK, I'm new to this stacking thing, but am drawn to it because I truly believe that Silver (and Gold) are in a secular ascent against all fiat currencies. I want real protection of my long term savings, with low risk. Equities don't cut it.

So why, in that case, are these so called Silver "bullion coins" trading at ridiculously high premiums to the underlying? Even for current issue 2020 Sovereigns, excluding VAT, I have to pay upwards of £22. That a 40%+ premium for something that is intrinsically only worth £14.5 today. With Gold sovereigns through a dealer, the premium over spot is 7-8%. Much more reasonable.

 

It is this sky high premium that is stopping me from stacking Silver bullion coins. And let's not go towards numismatic coins, especially the gazillion of different country modern era issues, series, collections etc that are minted to tempt a gullible collector base with seemingly "low" mintage numbers but which, in reality, have never seen the light of day outside the Mint in question to the collector, certainly never been used in circulation as REAL coins. I contrast these modern era coins with the highly circulated, real coins of yesteryear.

Anyway, I would just like to understand better how the system operates like this. Are 40% premiums simply a product of excess demand for "poor man's Gold"? Because I don't get it, especially when you consider a multi-year underperformance of Silver to Gold (from 40:1 to 120:1) which in itself suggests that the premium should be with Gold coins, not the other way round.

This is an honest post, not knocking the collecting hobby. I WANT to stack. But only if I can do so without paying up unnecessarily for the privilege, and then, in a real emergency, suffering a 30% haircut on my "net worth" in Silver bullion from spot dealers.3

[TheApe]

Buy vaulted silver, avoid the premium.

If you want to hold something, buy gold.

Edited May 20, 2020 by TheApe

[Bxlsteve]

For the modern silver bullion, let’s not forget about the minimum Cost of making, selling, distributing them. 
we always speak about % but the make a silver or gold coin the fix amount it cost to produce etc are the same. Only the metal is different. 
so a 2% of an ounce of gold is 28 pounds. Way much than the premium on modern silver. The cost are more or less the same.  

now, these costs are going down with older pieces which circulation already flattened out the production and promotion costs.

 

Hole this helps a bit

well at least that is what I understand of it. 
 

cheers

[Shep]

7 hours ago, Divmad said:

I want real protection of my long term savings

7 hours ago, Divmad said:

I WANT to stack.

If you’re a UK buyer who wants physical PMs for wealth preservation - Cut the sickly, poor cousin, silver middle man out as it will do no such thing for you.

A real world (simplified) example:

I bought an oz of silver in 2016 it cost me around £18 and is now worth approximately about the same in a private sale and far less to a dealer.

I bought my first oz of gold in 2016 and it cost me £1049. It is now worth over £1400 in a private sale, or to a dealer.

Fancy charts, obnoxious YouTube silverbugs and our lord and saviour the fabled “gold silver ratio” can all go hang. As the buying power of my £s have evaporated over the last 4 years, it is clear to me which metal has preserved my wealth

Don’t be attracted by the false economy of being able to buy larger quantities of silver than gold due to its relative per oz affordability.

Save up and focus efforts on buying gold.

That being said, no one truly knows what the pms are going to do day to day and holding a small amount of silver is clearly a good idea for the sake of a building a diverse stack. 
 

(Posted in the spirit of friendly discourse - apologies to the silverbugs)

Edited May 21, 2020 by Shep

[Horse]

The way I realistically see it playing out is, bar a huge sustained jump in silver spot, that the premium I pay today will even out down the road.  If I pay 10% premium today, hopefully with future spot increase, I'll get what I paid in the future.  I see it as a store of wealth and not a money maker.  This doesn't factor in collectible coins that may or may not go up.  The Queen's Beasts are an example of that.  Try buying a griffin for a decent price these days.

[Divmad]

Horse, where can I buy Silver today at a 10% premium, here in the UK?

[Horse]

I was just using 10% for ease of example.  I am in the US and don't know what the UK market is like.

[Divmad]

OIC. Just checked with Chards and Atkinsons, who are large UK online dealers. Their 2020 1oz Britannias go for £24.82 each, versus spot Silver of £14. So a 70%+ premium. And that's before adding 20% VAT!!!

[kimchi]

1 minute ago, Divmad said:

OIC. Just checked with Chards and Atkinsons, who are large UK online dealers. Their 2020 1oz Britannias go for £24.82 each, versus spot Silver of £14. So a 70%+ premium. And that's before adding 20% VAT!!!

Not defending it but VAT is already included.

[Horse]

To me VAT sounds insufferable.  There's plenty wrong with our system here but a 20% tax on something is beyond excess.  I paid a 35% premium on my last order of Britannias when spot was $15.50.  There's a 6% sales tax.  That worked out to about $22.18 per coin.  That seemed quite reasonable compared to everything else I've seen.  Definitely cheaper than eagles or maples.  I placed another order for some the next day too and am thanking myself now that spot is over $17.

[Shep]

1 hour ago, Horse said:

If I pay 10% premium today, hopefully with future spot increase, I'll get what I paid in the future.  I see it as a store of wealth and not a money maker. 

But is this not exactly the problem? You get what you paid in. It hasn’t kept up with inflation and the rate of devaluation of the fiat you bought in with.

With the example of an oz of gold I used earlier, I haven’t made any money on it, it’s just helped to retain the buying power of the pounds I purchased it with. I can buy now with £1400 the same amount of goods and services I could purchase with £1049 4 years ago.

I just don’t see how silver can provide this function with the crippling premiums and floundering spot price.

@Horse I understand why in the U.K. the premiums are so high for silver bullion (VAT). With more reasonable sales tax over the pond, what in your opinion are the reasons for such high premiums in the USA?

^ forgive me if this sounds ignorant, I’m genuinely interested in what the reasons are.

Edited May 21, 2020 by Shep

[Horse]

@Shep I do see your point about value put in as relates to future inflation.  It's still better to put into silver than the regular useless junk that I'm trying to cut out of my spending.

I really wish I knew what's causing the high premiums.  Considering that I can buy a Britannia for much cheaper than an eagle, it doesn't make sense.  We don't pay VAT but there are shipping costs associated with getting a UK minted coin over here.  I can't see that manufacturing costs are that much more here than the UK.  Imagine we're pretty on par with each other there.

[Shep]

1 minute ago, Horse said:

It's still better to put into silver than the regular useless junk

I suppose after all is said and done that there is one of the most salient reasons to become a stacker. Whether it be gold or silver.

[Shep]

2 minutes ago, zhoutonged said:

Unless you are selling to a dealer the premiums get passed on at point of sale.

Yes the premiums get passed on but in the past 10 years the increase in spot price for silver has been negligible. 

The increase in spot price has not kept up with the pace of devaluation, effectively chipping away at your wealth while you have cash sat in silver (when compared to gold).

[AgCoyote]

2 hours ago, zhoutonged said:

 

Just one more tax on top of all the others, Tyranny doesn't come cheap you know!

One day I hope to live in a world where there is no income tax, no property tax, no VAT tax. Merely excise taxes and sales taxes, that's it.

[Shep]

17 minutes ago, zhoutonged said:

The physical market versus the paper market

Meaning what exactly?

When comparing a UK and a USA physical silver bullion buyer how does that sentence explain why a USA buyer is paying $26 for a bog standard ASE?

At least here in the U.K. we can blame the excessive premiums charged partially on VAT.

[Shep]

6 minutes ago, zhoutonged said:

Meaning the market price for physical is not the same as the paper price on the comex

Oh I see, forgive the lay speak -  there is a disconnect between the comex paper price and the value seen in silver by physical consumers?

[JFD]

As a complete novice, I was attracted to buying silver coins by what seemed to be the unanimous voice of the internet. However, once I became aware of this "premium" = a euphemism for excess profit, it seems - I have had second thoughts. I may consider gold but I really wonder if there are other and better ways to invest. Maybe I'm in the wrong place for that thought.

[MBTPSilver]

On 11/05/2023 at 23:56, JFD said:

As a complete novice, I was attracted to buying silver coins by what seemed to be the unanimous voice of the internet. However, once I became aware of this "premium" = a euphemism for excess profit, it seems - I have had second thoughts. I may consider gold but I really wonder if there are other and better ways to invest. Maybe I'm in the wrong place for that thought.

Premiums aren't excess profits. There is a fixed cost to make and supply the coin, by the time you add staff salaries and stuff in dealers honestly make very little on a 1oz silver coin. It's super frustrating, but it's more that spot price isn't a genuine reflection of the value of silver. BBP have a page exploring it in more detail - https://www.bullionbypost.co.uk/index/silver/why-are-silver-premiums-high/

Buying/selling privately you can get much closer to spot, but with such a cheap metal there's always going to be some spread to consider.

[codenamedtango]

7 hours ago, MBTPSilver said:

Premiums aren't excess profits. There is a fixed cost to make and supply the coin, by the time you add staff salaries and stuff in dealers honestly make very little on a 1oz silver coin. It's super frustrating, but it's more that spot price isn't a genuine reflection of the value of silver. BBP have a page exploring it in more detail - https://www.bullionbypost.co.uk/index/silver/why-are-silver-premiums-high/

Buying/selling privately you can get much closer to spot, but with such a cheap metal there's always going to be some spread to consider.

Not a bad explanation by BBP there.

[Brassic]

If i was a betting man i'd say it's the cost of omission before things take off

[bluffer]

On 15/05/2023 at 10:23, MBTPSilver said:

Premiums aren't excess profits. There is a fixed cost to make and supply the coin, by the time you add staff salaries and stuff in dealers honestly make very little on a 1oz silver coin. It's super frustrating, but it's more that spot price isn't a genuine reflection of the value of silver. BBP have a page exploring it in more detail - https://www.bullionbypost.co.uk/index/silver/why-are-silver-premiums-high/

Buying/selling privately you can get much closer to spot, but with such a cheap metal there's always going to be some spread to consider.

depends on the level of premium. 

its like the whole PPI/insurance commission thing.  the courts decided there was an excess level that could lead to refunds. hence the ambulance chasers.   cant wait for everyone on the board to sign up to an advert going "MISSOLD SILVER? PAID TOO MUCH PREMIUM?  CALL US NOW ON 0800 XXXXxxx or WWW.WE WILL CHARGE YOU 75% OF OUR WINNINGS.COM

 

🤣

[HillWalkerDundee]

On 29/05/2023 at 19:34, bluffer said:

depends on the level of premium. 

its like the whole PPI/insurance commission thing.  the courts decided there was an excess level that could lead to refunds. hence the ambulance chasers.   cant wait for everyone on the board to sign up to an advert going "MISSOLD SILVER? PAID TOO MUCH PREMIUM?  CALL US NOW ON 0800 XXXXxxx or WWW.WE WILL CHARGE YOU 75% OF OUR WINNINGS.COM

 

🤣

How to lose friends and upset people, most of my coins have been purchased from the forum :-).