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Who / what determines the “premium” over spot?

HJPHJP Posts: 419 ✭✭✭

Under “normal” market conditions- the premium (or “built in margin”) is pretty consistent- % wise.

In these turbulent times, it’s normal for premiums to increase, as perceived risk increase (I.e.price volatility is driven by fear of the unknown).

So, as our monetary system is deconstructed & inflated away with insurmountable levels of debt, when will the DECOUPLING of precious metal spot prices to actual sale prices become so great that those who now set the spot price lose their ability to control actual sales price?

Comments

  • 1630Boston1630Boston Posts: 8,284 ✭✭✭✭✭

    I do not know.

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  • bronco2078bronco2078 Posts: 9,035 ✭✭✭✭✭

    me............. i do . on my deal of the moment by haggling up or down or declining altogether

  • HigashiyamaHigashiyama Posts: 1,425 ✭✭✭

    @bronco2078 said:
    me............. i do . on my deal of the moment by haggling up or down or declining altogether

    Yes, exactly! Supply and demand in the marketplace.

    Higashiyama
  • bronco2078bronco2078 Posts: 9,035 ✭✭✭✭✭
    edited November 18, 2020 10:11AM

    I should have said between two parties of approximately equal market power.

    A large seller like APMEX can make a market and tilt things their way but even they need to adjust premiums if buyers opt out.

    In fact you can peruse APMEX website and see this at work. They have a huge selection and quote high premiums on many oddball items presumably they complete sales at those prices but we can't be sure. Demand can be very thin for some things and yet strong buyers exist .

    I have it on good authority , for instance , that several forum members who fall in love with some of the most wretched forms of bullion are will to pay huge premiums ;)

  • derrybderryb Posts: 30,376 ✭✭✭✭✭

    Market sellers of physical metal set the premium over spot based on:
    -Demand
    -Competitor's pricing

    Fears, worry, rising prices and turmoil determine demand.

    Premiums over spot are your indicator of amount of control by the paper market. Decouple? Eventually. I am a firm believer that the COMEX futures market for gold and silver will implode/default on delivery. Up to this point when COMEX could not make good delivery an acceptable amount of cash did the job. When "acceptable" become too great COMEX will fail.

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  • MsMorrisineMsMorrisine Posts: 24,874 ✭✭✭✭✭

    @derryb said:
    Market sellers of physical metal set the premium over spot based on:
    -Demand
    -Competitor's pricing

    yah

    Current maintainer of Stone's Master List of Favorite Websites // My BST transactions
  • CuAgAu101CuAgAu101 Posts: 4
    edited November 18, 2020 2:38PM

    The premium over spot is largely consistent like HJP stated; around 2% for Au give or take under normal conditions. This past year there have been episodes where premiums have been significantly higher for actual physical metal. This results from the fact that paper prices are artificially discovered through futures derivatives. You will likely see the spread between paper and physical widen if any market disturbances occur. It's fascinating times babyyyy (and somewhat worrisome).

  • blitzdudeblitzdude Posts: 3,045 ✭✭✭✭✭

    Supply / demand. Just as it's always been and will continue to be.

  • BaleyBaley Posts: 22,146 ✭✭✭✭✭

    The one-word answer is "collectors"

    Liberty: Parent of Science & Industry

  • BaleyBaley Posts: 22,146 ✭✭✭✭✭

    Rational people sell things for as much as they can get, and buy them for as little as they have to.

    Liberty: Parent of Science & Industry

  • bronco2078bronco2078 Posts: 9,035 ✭✭✭✭✭

    @Baley said:
    Rational people sell things for as much as they can get, and buy them for as little as they have to.

    there are no rationals on a collector board

  • MsMorrisineMsMorrisine Posts: 24,874 ✭✭✭✭✭

    @bronco2078 said:

    @Baley said:
    Rational people sell things for as much as they can get, and buy them for as little as they have to.

    there are no rationals on a collector board

    i'm only 99% in agreement with that.

    Current maintainer of Stone's Master List of Favorite Websites // My BST transactions
  • bronco2078bronco2078 Posts: 9,035 ✭✭✭✭✭

    @MsMorrisine said:

    @bronco2078 said:

    @Baley said:
    Rational people sell things for as much as they can get, and buy them for as little as they have to.

    there are no rationals on a collector board

    i'm only 99% in agreement with that.

    I sell at an antique booth right? I had a 2 oz queens beast marked $60 ( black bull or summat?) A guy says will you take $40 ? I say no why would i sell it for less than melt?

    He says silver is only worth $15 an ounce its my final offer :D I said i'm sorry did you think we were doing a back and forth here? I'm no great fan of the queens beasts I would have taken $50 but he was being a dink. So i don't budge .

    So he goes to another booth and sees an 18 inch Jason from friday the 13th figure and pays $110 for it , no haggling :D

    Initially I thought the guy was an idiot and I was correct. Its a doll from a movie ????

    Apples to apples ! Some might say what good is a 2 oz lump of silver ? Fine but grown men playing with dolls is not a good way to win that sort of argument.

    It amazes me the weird stuff people buy in there or don't buy for that matter.

  • element159element159 Posts: 371 ✭✭✭

    @bronco2078 said:

    @Baley said:
    Rational people sell things for as much as they can get, and buy them for as little as they have to.

    there are no rationals on a collector board

    I am 1/sqrt(2) in agreement with that.

    image
  • HigashiyamaHigashiyama Posts: 1,425 ✭✭✭

    @element159 said “ I am 1/sqrt(2) in agreement with that.”

    I think we all find that irrational.

    Higashiyama
  • MsMorrisineMsMorrisine Posts: 24,874 ✭✭✭✭✭

    @MsMorrisine said:

    @bronco2078 said:

    @Baley said:
    Rational people sell things for as much as they can get, and buy them for as little as they have to.

    there are no rationals on a collector board

    i'm only 99% in agreement with that.

    99% = 99/100, a rational number.

    I'm mostly in agreement but there is that 1% that is rational... (the 1%ers?)

    Current maintainer of Stone's Master List of Favorite Websites // My BST transactions
  • rickoricko Posts: 77,889 ✭✭✭✭✭

    The seller and buyer determine the premium over spot.... final decision is agreement between the two. Cheers, RickO

  • HJPHJP Posts: 419 ✭✭✭

    What criteria is used to determine the “premium” over spot?

    Who decides is obvious- any trade needs agreement between seller and buyer.

  • HigashiyamaHigashiyama Posts: 1,425 ✭✭✭

    Assuming that the item (bar, coin, round) has no collector value, the spread over spot will depend on general market acceptance and liquidity. This in turn will depend on the reputation of the producer (e.g., US and Canadian mints rank high), fineness (perhaps 999 is slightly preferable to 900 or 916), size (smaller formats generally carry higher spreads -- this even goes for really big formats, such as 1 kilo versus 400 ounce), difficulty of counterfeiting, and popularity (which ties back to demand and liquidity).

    Higashiyama
  • BaleyBaley Posts: 22,146 ✭✭✭✭✭

    Also, is it pretty, cool, handcrafted, popular, historic, or rare?
    Additional premium for more than one of those 😉 super bonus for all of the above.

    Liberty: Parent of Science & Industry

  • HJPHJP Posts: 419 ✭✭✭

    Market acceptance,IMHO, defines liquidity (i.e. liquidity is an expression of agreed upon selling price).

    Buyer preference is market knowledge of type of bullion.

    But, why the large swing in premium when nothing about “market acceptance” has changed?

  • derrybderryb Posts: 30,376 ✭✭✭✭✭

    Make sure you are very clear on what determines actual spot - It has nothing to do with the supply or the demand for physical metal.

    Message me on how to get $40 free while earning 1% cashback on ebay purchases. Offer expires Dec. 25.

  • HigashiyamaHigashiyama Posts: 1,425 ✭✭✭

    @HJP asked "why the large swing in premium when nothing about “market acceptance” has changed?"

    Simply supply and demand factors at the low end of the market. Earlier this year, due mainly to COVID, we were seeing what might be described as panic buying; demand getting ahead of available supply, causing an increase in spread.

    There is lots of physical metal, but not necessarily in the format the buyers are looking for. When buyers are looking for smaller formats, or formats that are not immediately available (such as 100 ounce versus 400 ounces), spreads will temporarily increase, until the fabricators can catch up with demand, as they always do. Even on smaller sizes, spreads have come down significantly. If you want something bigger -- eg, a 100 ounce good delivery gold bar -- you can get one for perhaps $ 10 above spot at the moment; for a kilo, a bit more.

    Higashiyama
  • HJPHJP Posts: 419 ✭✭✭

    At some point in the current process of monetary devaluation, the "premiums" people are willing to pay to own precious metals are likely to increase - significantly.

    Seema to me the "spot" price quoted by the power that be, is a means to try to control price volatility and keep the metal futures market afloat.

    When they call in the fiat, what do you think will happen to the actual sale price of physical precious metals?

  • HigashiyamaHigashiyama Posts: 1,425 ✭✭✭

    The futures markets (in gold and other commodities) are healthy and are likely to remain so. There will be occasional blips, but for those who want to acquire large quantities, physical will continue to closely track spot.

    Higashiyama
  • HJPHJP Posts: 419 ✭✭✭

    We are going to find out soon enough.

  • TwoSides2aCoinTwoSides2aCoin Posts: 41,791 ✭✭✭✭✭

    The market.

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