Many first-time investors ask us why the price listed for our coins and bars is different than the current “spot price” or “market price” of gold or silver that we list on a ticker on our website and is also frequently quoted in financial media sources.
The reasons are actually quite simple, once you consider what each of those price points actually means.
The spot price represents the current rate for gold (symbol: XAU) and silver (symbol: XAG) contracts as established by the Commodities Exchange (COMEX), a division of the New York Mercantile Exchange (NYMEX). The COMEX is the primary market for commodities brokers, commercial producers and institutional buyers and sellers to trade gold and silver options and futures contracts. The standard size of a contract is 100 ounces for gold and 5,000 ounces for silver. The NYMEX is also the leading exchange for platinum, palladium, aluminum, copper, coal, crude oil, gasoline, heating oil and other commodities. Prices listed on the COMEX in no way represent the selling price for physical gold and silver coins and bars to individual investors, though the spot price is one of several components that ultimately does set that price.
Gold and silver coins and bars are made available to individual investors in sizes ranging from 1 gram to 1 kilogram (32.15 Troy ounces), including the popular weight of 1 Troy ounce (31.1 grams). Examples include gold and silver bars, plus coins like the American Eagle, American Buffalo, Canadian Maple Leaf, South African Krugerrand, etc. The price that dealers charge for these items takes into account the current spot price for gold or silver, in addition to costs related to refining the metal to remove impurities, manufacturing usable form factors (minting of the coins and pressing or pouring of the bars), transportation and distribution, administration, and other expenses related to the precious metals supply chain. The result is a product that typically trades between 2% and 15% higher than the spot price of the metal on the COMEX. This should not be mistaken as sales commissions, transaction fees, or dealer margin. The percentage over spot is generally less as the unit size increases (a 1 kilogram bar has a lower price over spot than a 1 gram bar does) and is also generally lower for gold than for silver. The supply of a specific type of coin or bar can also drive fluctuations in the price. For example, a particular coin may have a particularly desirable design or limited mintage, which makes it more popular on the market, thereby driving up the price.
The above information does not apply to the market for Investment Grade Coins. These coins have been certified by a third party to assess and guarantee their year of issue, condition and catalog their rarity. Examples include a 2012 Gold American Eagle certified in Proof 70 condition or a Double Eagle from the Old West certified in MS65 condition. The value of investment grade coins is determined by supply and demand, just like other high-end hard assets (real estate, fine art, antiques, classic cars, etc.) and their market value is not tracked on an index, though a history of recent selling price, auction results and professional estimates can provide an estimate of current value. Investment grade coins are considered to be a more secure investment since historical data indicates much less volatility, along with more steady market performance. Rarity is the key factor that drives the price up over time. Selecting the right coin is key, and our firm can help you do that.