Why Premiums so High now over Spot Market Price?

[very452001]

Hi,

Are there regulations or a certain limit max % over the spot price where dealers have to follow when selling the physical version? Or does the free market set the premium for physical?

If the day comes when there's such a big difference in price between the physical and the paper market, then surely 2 markets cannot exist at the same time right? At least 1 has to die off correct for the precious metals market to be taken seriously? Imagine paper silver still trading at $17 while physical silver is trading at $100 per ounce at the same time . Surely this looks a joke when 2 markets are running simultaneously with such different prices....

At this time dealers cant say or fool buyers that the huge price difference is determined by a $83 premium for 1oz silver to keep the paper silver markets still alive or the paper markets have to admit there's not physical silver to cover paper silver and the whole paper silver market comes crashing down and dies off.

 

[James32]

Spot + premium +vat in UK = dealer price 

[Gordy]

24 minutes ago, very452001 said:

At this time dealers cant say or fool buyers that the huge price difference is determined by a $83 premium for 1oz silver to keep the paper silver markets still alive

i'd say you would never hear Lawrence say anything like this or even other dealers to try to con a sale, they set their prices on what they believe will be a reasonable priced product, any higher then they would risk being left with stock getting dusty/rusty/milky/blah blah while all other dealers reap the benefits.

Its a free market and in any sort of consumer market like this there is no need to regulate as customers would dictate a pricing strategy to some extent as there are so many outlets to buy and unless there was a price fixing conspiracy worldwide there will always be competition so the +83% premium on standard bullion will probably never happen

[MonkeysUncle]

It's a free market, so a seller can charge what he likes so long as somebody is prepared to pay.

Otherwise he ain't going to be doing much business!

[LawrenceChard]

14 minutes ago, very452001 said:

• Home  Precious Metals  Silver 
•  

Hi,

Are there regulations or a certain limit max % over the spot price where dealers have to follow when selling the physical version? Or does the free market set the premium for physical?

If the day comes when there's such a big difference in price between the physical and the paper market, then surely 2 markets cannot exist at the same time right? At least 1 has to die off correct for the precious metals market to be taken seriously? Imagine paper silver still trading at $17 while physical silver is trading at $100 per ounce at the same time . Surely this looks a joke when 2 markets are running simultaneously with such different prices....

At this time dealers cant say or fool buyers that the huge price difference is determined by a $83 premium for 1oz silver to keep the paper silver markets still alive or the paper markets have to admit there's not physical silver to cover paper silver and the whole paper silver market comes crashing down and dies off.

 

I had to look to see what category you had posted this under, as it was not clear from you post whether you were talking about gold (my default assumption), silver, platinum, or something else entirely.

Of course there are no "regulations or a certain limit max % over the spot price where dealers have to follow when selling the physical version". This is the UK, not China or North Korea, so we tend to be quite democratic and libertarian.

Premiums on silver are necessarily higher than on gold.

The cost to produce a one ounce gold or silver coin is proobbly similar, so that in relative terms, the production cost for silver is almost 90 times higher than for gold.

Shipping cost per coin is higher, because 90 silver coins are heavier than 1 gold coin.

While some dealers are content to make 2% margin on an ounce gold coin (2% of £1500 is £30), 2% margin on a similar silver coin, with silver about £17, comes to 34 pence. Iought to know what the staff cost is to sell a one ounce silver coin, but I don't. I guess it costs at least £1, which is about 6%.

Then there is VAT, currently 20%.

@James32 has already partly answered, shorter and sweeter than my answer.

But you are surely not buying silver coins or bars (you don't state which) as an investment, are you?

If so, I suggest you read this (shameless plug for advice guide written by somebody or other):

https://www.chards.co.uk/blog/advice-guide-for-uk-bullion-investors/1041

I like silver as well, and I think it is cheap. Do you know the current Gold:Silver ratio?

Sure, there are probably millions of YouTube influencers trying to persuade you to "invest" in silver. Some of them push Conspiracy Theories, some even seem to believe them. It's a lot like most religions.

Many silver coins look nice, and so are good for collectors. A monster box of silver Britannias makes a great doorstop.

Not all dealers try to fool people.

I know.

Mind you, I can only think of one who doesn't!

😎

[LawrenceChard]

10 minutes ago, Gordy said:

i'd say you would never hear Lawrence say anything like this or even other dealers to try to con a sale, they set their prices on what they believe will be a reasonable priced product, any higher then they would risk being left with stock getting dusty/rusty/milky/blah blah while all other dealers reap the benefits.

Its a free market and in any sort of consumer market like this there is no need to regulate as customers would dictate a pricing strategy to some extent as there are so many outlets to buy and unless there was a price fixing conspiracy worldwide there will always be competition so the +83% premium on standard bullion will probably never happen

You beat me to that.

I should say less or type quicker!

😎

7 minutes ago, MonkeysUncle said:

It's a free market, so a seller can charge what he likes so long as somebody is prepared to pay.

Otherwise he ain't going to be doing much business!

I blame the buyers who pay too much!

😎

[MonkeysUncle]

Quote

A monster box of silver Britannias makes a great doorstop.

Not when you want to open or close the door it doesn't!

A kilo of finest Umicore does the trick for me!

[SidS]

51 minutes ago, very452001 said:

If the day comes when there's such a big difference in price between the physical and the paper market, then surely 2 markets cannot exist at the same time right? ... Imagine paper silver still trading at $17 while physical silver is trading at $100 per ounce at the same time . Surely this looks a joke when 2 markets are running simultaneously with such different prices....

I guess it's like comparing the US dollar with the Zimbabwe dollar. They're both dollars, one's just worth a little bit less. 😁

Edited September 13, 2022 by SidS

[Bigmarc]

The spot price of coffee at the moment is £1.90 per lb (500g ish). The cheapest 500g coffee I can find is £6.75. that's a 255% premium. Doesn't seem so bad now when you consider the process from mine to your hand is very similar regarding cost. 

[SidS]

7 minutes ago, Bigmarc said:

The spot price of coffee at the moment is £1.90 per lb (500g ish). The cheapest 500g coffee I can find is £6.75. that's a 255% premium.

I wonder what the spot price is for glass jars, lids and labels. I can't imagine they'd bump the price up by much tbh.

[James32]

8 minutes ago, Bigmarc said:

The spot price of coffee at the moment is £1.90 per lb (500g ish). The cheapest 500g coffee I can find is £6.75. that's a 255% premium. Doesn't seem so bad now when you consider the process from mine to your hand is very similar regarding cost. 

Actually a very good point..and so many more examples. 

[Bigmarc]

3 minutes ago, James32 said:

Actually a very good point..and so many more examples. 

Just a pity you can't buy scrap coffee, I would be all over it.

[Stuntman]

Scrap coffee might be even more tasty if it had milk spots...

[Pete]

For the same reason that the price of gas has shot up - market, demand, availability.
Some UK coins may have risen a bit for sentimental reasons following the death of QE-II
 

[very452001]

2 hours ago, James32 said:

Spot + premium +vat in UK = dealer price 

VAT is the still the same at 20%, hasn't changed right or they gonna change it? No VAT on Gold now?

[very452001]

2 hours ago, Gordy said:

i'd say you would never hear Lawrence say anything like this or even other dealers to try to con a sale, they set their prices on what they believe will be a reasonable priced product, any higher then they would risk being left with stock getting dusty/rusty/milky/blah blah while all other dealers reap the benefits.

Its a free market and in any sort of consumer market like this there is no need to regulate as customers would dictate a pricing strategy to some extent as there are so many outlets to buy and unless there was a price fixing conspiracy worldwide there will always be competition so the +83% premium on standard bullion will probably never happen

If the Paper markets are highly manipulated and they want the paper market still be open and running along side the physical market then yeah they will say huge premiums like 83% lol.

So to clarify the physical dealer can rightfully set choose whatever premium they want on top of the spot price? The free market dictates the physical price and the corrupted wall street dictates the paper price?

[Stuntman]

New Prime Minister Liz Truss might change the UK rate(s) of VAT on various products and services.  This may or may not include silver and platinum, but the rates of VAT are likely to be changed downwards on some things if any changes are made at all.

Remember that as per James32's equation, VAT is added as a percentage to the total of spot plus premium, so if the premiums go up and all other things being equal, the absolute amount of VAT included in the price will also go up.

[Stuntman]

3 minutes ago, very452001 said:

So to clarify the physical dealer can rightfully set choose whatever premium they want on top of the spot price? The free market dictates the physical price and the corrupted wall street dictates the paper price?

Yep, pretty much, perhaps without the words 'the corrupted'.

[AurumArgenti]

If dealer premiums are bothering people you could always try ebay.😉😆

https://www.ebay.co.uk/itm/284963142385?mkcid=16&mkevt=1&mkrid=711-127632-2357-0&ssspo=047BqN6cTmW&sssrc=2349624&ssuid=RjlIgr1zTkS&var=&widget_ver=artemis&media=COPY

[James32]

1 minute ago, very452001 said:

So to clarify the physical dealer can rightfully set choose whatever premium they want on top of the spot price?

No.

They would likely be bankrupt in 6 months. Besides a new player would keep coming to market and undercut them,forcing a reduction. I suppose if all the dealers in the uk got together and colluded a set higher price then its possible, but they are competitors so highly unlikely. The only time all bets are off is when/if there's a shortage/supply chain issue. Then dealers tend to increase premium for 2 reasons...

1) drag out stock levels until they can be refuelled 

2) keep the lights on in the premises 

 

2 minutes ago, AurumArgenti said:

If dealer premiums are bothering people you could always try ebay.😉😆

https://www.ebay.co.uk/itm/284963142385?mkcid=16&mkevt=1&mkrid=711-127632-2357-0&ssspo=047BqN6cTmW&sssrc=2349624&ssuid=RjlIgr1zTkS&var=&widget_ver=artemis&media=COPY

Just bought it thank you. 

[MonkeysUncle]

2 minutes ago, AurumArgenti said:

If dealer premiums are bothering people you could always try ebay.😉😆

https://www.ebay.co.uk/itm/284963142385?mkcid=16&mkevt=1&mkrid=711-127632-2357-0&ssspo=047BqN6cTmW&sssrc=2349624&ssuid=RjlIgr1zTkS&var=&widget_ver=artemis&media=COPY

I see the gentleman is running a business that extracts waste body fluids.

Wouldn't surprise me if he bought off of a Chinaman for a tenner either!

[very452001]

2 hours ago, LawrenceChard said:

I had to look to see what category you had posted this under, as it was not clear from you post whether you were talking about gold (my default assumption), silver, platinum, or something else entirely.

Of course there are no "regulations or a certain limit max % over the spot price where dealers have to follow when selling the physical version". This is the UK, not China or North Korea, so we tend to be quite democratic and libertarian.

Premiums on silver are necessarily higher than on gold.

The cost to produce a one ounce gold or silver coin is proobbly similar, so that in relative terms, the production cost for silver is almost 90 times higher than for gold.

Shipping cost per coin is higher, because 90 silver coins are heavier than 1 gold coin.

While some dealers are content to make 2% margin on an ounce gold coin (2% of £1500 is £30), 2% margin on a similar silver coin, with silver about £17, comes to 34 pence. Iought to know what the staff cost is to sell a one ounce silver coin, but I don't. I guess it costs at least £1, which is about 6%.

Then there is VAT, currently 20%.

@James32 has already partly answered, shorter and sweeter than my answer.

But you are surely not buying silver coins or bars (you don't state which) as an investment, are you?

If so, I suggest you read this (shameless plug for advice guide written by somebody or other):

https://www.chards.co.uk/blog/advice-guide-for-uk-bullion-investors/1041

I like silver as well, and I think it is cheap. Do you know the current Gold:Silver ratio?

Sure, there are probably millions of YouTube influencers trying to persuade you to "invest" in silver. Some of them push Conspiracy Theories, some even seem to believe them. It's a lot like most religions.

Many silver coins look nice, and so are good for collectors. A monster box of silver Britannias makes a great doorstop.

Not all dealers try to fool people.

I know.

Mind you, I can only think of one who doesn't!

😎

Okay the Usual premium for physical gold is 2% and for physical silver is 6% + 20% VAT?

The $USD Dollar Currency is really strong at the moment meaning you get more £pounds when you exchange dollars for pounds. Spot Market price of silver is give or take $17-18. Convert that into £GBP and add the 6% premium plus VAT and yet physical silver 1oz coins costs more than this calculation now so you sure premiums are at 6% for silver? 

[SidS]

What would happen if they added VAT back onto gold?

[very452001]

1 hour ago, Bigmarc said:

The spot price of coffee at the moment is £1.90 per lb (500g ish). The cheapest 500g coffee I can find is £6.75. that's a 255% premium. Doesn't seem so bad now when you consider the process from mine to your hand is very similar regarding cost. 

Coffee has a expiry date, cannot be stored for long periods of time or it loses its freshness so it needs to be put on the physical market quickly you know what I mean. 

[very452001]

2 hours ago, LawrenceChard said:

You beat me to that.

I should say less or type quicker!

😎

I blame the buyers who pay too much!

😎

What if the buyer becomes a seller and wants to sell back the physical silver back to you straight away after buying it in the 1st place in your shop? You buy it back at spot price?

So lets say for example paper market says spot price is $17 for silver and you sell physical silver for $100 for 1oz. I come in your shop, buy it for $100 but few secs later changed my mind don't want it and sell it back to you. So you will buy if off me for spot price $17 only for my physical silver? Sounds like a scam daylight robbery lol.