Knowing how gold and silver prices are established before you make a purchase may save you money.
The value of silver coins is mainly determined by the silver spot price or spot silver price for 1 troy oz. of silver.
Ditto for the value of gold coins ... simply replace the word silver with the word gold in the above paragraph.
International market forces cause commodity spot gold and silver prices to fluctuate throughout the day when markets are open.
The word spot in silver spot price (or gold) means the buyer and seller agree on a price now. Additionally both payment and delivery happen immediately.
While spot purchases require immediate payment and delivery, futures contracts specify payment and delivery in a future month.
Please click on the two links below to see actual spot prices. You will also find out how current gold and silver spot prices are discovered.
Silver and gold bullion dealers generally price their products higher than the spot prices.
Like most businesses, dealers include a markup to cover their costs and make a profit.
A dealer premium is the difference between the wholesale spot price of a large ingot (i.e. 100 oz. gold, 1,000 oz. silver) traded on a futures exchange and the retail price of a minted coin or bar purchased from a dealer.
Dealers absorb layered manufacturing costs when they buy finished products from mints. And since the precious metals marketplace is competitive, their profit margins on bullion products are typically small.
When trading on the open market, dealers usually quote an ask price (retail) when selling coins and a bid price (wholesale) when they are buying the same make of coins ... or buying back the coins they sold you.
The difference (or spread) between the two prices is how dealers make a profit. Bullion products generally have smaller spreads than collectibles.
Like the pricing of bullion coins, spot prices are used as reference points to determine prices of gold and silver bars.
Generally bar prices are less than coin prices on a per ounce basis. Simply put, the larger the bar, the lower the price per ounce.
However, the market is smaller for silver and gold bars. Selling them might be more difficult as a result. This may be truer with larger bars.
Nevertheless like anything for sale, if demand outstrips supply, bullion bars should be easy to liquidate. It's a matter of market timing.
The key benefit of buying gold or silver bullion bars is you usually get the most metal for your money.
Collectors place higher values on gold and silver rare coins because of their rare features. As a result, a dealer’s price spread is often greater if the coin you want to purchase has numismatic value.
Gold and silver bullion coins are usually not considered unique, so their prices do not include numismatic value. I make this point so you don't confuse bullion coin and rare coin prices.
Like any profession, there are good and bad precious metals dealers.
I encourage you to find a well-established dealer. Ask someone you trust about their experience with a particular dealer.
Not getting a competitive price on a bullion coin is one thing -- purchasing a fake gold bar is obviously far worse.
Or selling a rare coin well below its true value because you didn't know its worth.
You can reduce this risk by choosing a dealer listed with a widely-accepted numismatic coin association. Examples include:
Dealers are forced to frequently adjust their prices due to constant changes in supply and demand.
Dramatic shifts in market forces (supply/demand) in any investment can cause substantial price swings.
Gold and silver are not exempt. Like any commodity there are risks involved when investing in these precious metals.
Some common sense things you can do:
One way to gauge a dealer's reputation is to check their rating with the Better Business Bureau.
Throughout history gold bullion and silver bullion have been favorites for storing wealth.
Gold and silver prices tend to increase when the public loses confidence in major currencies or the societies that back them.
Maybe someday currencies will once again be backed directly by precious metals ... and not mere confidence in a currency itself. Until then I am grateful for the freedom to own gold and silver bullion.
I hope this page has helped you better understand how gold and silver prices are determined. Please select a link in my navigation bar (upper left) to learn more about precious metals.
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