Bid/Ask spreads

FilamCoins

So I've been buying modern gold bullion coins for a while now and have been paying a couple % points above spot. When I go to sell sometime in the future, should I be looking to get spot, or will the bid always be a couple % points below? Is 6-8% the typical bid/ask spread (i.e. 3-4% on either side of spot)? Does it work the same way for pre-1933 common date "numismatic" gold? Thanks in advance for the education.

blitzdude

All depends on market conditions at your time of sale. 2-3 years ago you'd be lucky to be offered spot on Krugerrands or Maples. Presently you can expect to be offered $20-$30 over. AGEs typically realize slightly better (currently around +$50), 1/10, 1/4oz fractionals even better on a percentage basis. Pre 33 common dates similar to AGEs. Check with your LCS, dealers at your local shows to get an idea what market conditions are in your area. IMO its imperative to have a good exit strategy (which absolutely includes knowing what you can expect when selling) before you even begin to buy.

derryb

Your net "% points" (the price over spot, called the premium) is normally lower when selling to a reseller who has to turn it for his profit. Premiums are a natural occurrence with PM products. Private sales provide better premiums. Dude smartly mentioned exit strategy above and this should include expected costs (i.e. shipping, fees, etc.) that will affect your net.

Best to understand that bid/ask for spot prices is only the starting point to determine the actual bid/ask value of the PM product. If you do not understand this premium concept, start learning. Premiums vary among products based on supply, perceived quality and demand. A review of APMEX prices, while not a good source for a deal, can show you what's hot (higher premium) and what's not. Among common bullion coins gold eagles, gold buffalos and silver eagles tend to have the highest premiums that are normally the same when you go to sell. Quality gold products tend to return a price above current spot with the premium dependent on how and who you sell to. Spot price at that time will determine if your selling price is actually higher or lower than what you paid for the product. This means that the costs associated with both the purchase and the sale of the items can be fully recovered, with a gain, if spot price has increased beyond them since your made the purchase.

"Does it work the same way for pre-1933 common date "numismatic" gold?"

Yes, premiums affect all PM products. To know the premium one must compare the gold content of the item (1/2 oz for a $25 gold eagle) to the price of the same amount of gold on the spot market. This should help when it comes to coins:

Live, up to the minute gold and silver value for individual coins

and,

Gold coin specifications. Note that the weight of the coin does not always reflect the weight of the gold it contains. Gold eagles for example weigh more than the weight on the coin because they are not pure gold, yet the contain the amount of pure gold noted on the coin. (Alloys are added for hardness without affecting the total gold weight). A gold coin that is 90% gold has a gold value that is only 90% of current spot price. Gold value (and not always coin weight) plus premium equals product price.

FilamCoins

Ah, so rather than talking % above or below spot, the industry talks in terms of $ over spot, or premium. So if I bought a double eagle for $2,000 when spot was at $1,800, I paid a $200 premium. When I go back to sell, if spot is still at $1,800, a dealer might offer me $100 over spot, which is where he makes his money. Am I getting it? Are there cases (market situations) where dealers will only offer below spot for PM coins? The opposite of a premium is a discount? Thanks!

MsMorrisine

what modern bullion are you selling. that matters

derryb

@FilamCoins said:
Ah, so rather than talking % above or below spot, the industry talks in terms of $ over spot, or premium. So if I bought a double eagle for $2,000 when spot was at $1,800, I paid a $200 premium. When I go back to sell, if spot is still at $1,800, a dealer might offer me $100 over spot, which is where he makes his money. Am I getting it?

You got it.

Are there cases (market situations) where dealers will only offer below spot for PM coins? The opposite of a premium is a discount? Thanks!

Not normally except with the case of "junk silver" (pre-1965 coinage that contains silver) where it is not unusual to be offered spot or a bit less by a coin dealer.

FilamCoins

@MsMorrisine said:
what modern bullion are you selling. that matters

Nothing yet. Just trying to understand how the market works so I'm ready for an exit when the time comes. Thanks for checking.

derryb

@FilamCoins said:

@MsMorrisine said:
what modern bullion are you selling. that matters

Nothing yet. Just trying to understand how the market works so I'm ready for an exit when the time comes. Thanks for checking.

A rise in spot will normally bring you a profit, but keep in mind that the profit is normally really nothing more than insurance (protection) on the dollars you had tied up in the PM. PMs are my way of protecting a set aside portion of my cash.

FilamCoins

@derryb said:

@FilamCoins said:

@MsMorrisine said:
what modern bullion are you selling. that matters

Nothing yet. Just trying to understand how the market works so I'm ready for an exit when the time comes. Thanks for checking.

A rise in spot will normally bring you a profit, but keep in mind that the profit is normally really nothing more than insurance (protection) on the dollars you had tied up in the PM. PMs are my way of protecting cash.

Makes sense. That's my thinking as well. However, if we do go into a recession or bear market, what do you think gold can realistically get to if it's at $1,800 today? I'm sure there's some historical analysis of the correlation and what's happened in the past. Understand there's more driving the price of gold than just the economy and stock market, but would be interested to hear your prediction. That's probably the time when gold is worth more than just insurance.

derryb

@FilamCoins said:

@derryb said:

@FilamCoins said:

@MsMorrisine said:
what modern bullion are you selling. that matters

Nothing yet. Just trying to understand how the market works so I'm ready for an exit when the time comes. Thanks for checking.

A rise in spot will normally bring you a profit, but keep in mind that the profit is normally really nothing more than insurance (protection) on the dollars you had tied up in the PM. PMs are my way of protecting cash.

Makes sense. That's my thinking as well. However, if we do go into a recession or bear market, what do you think gold can realistically get to if it's at $1,800 today? I'm sure there's some historical analysis of the correlation and what's happened in the past. Understand there's more driving the price of gold than just the economy and stock market, but would be interested to hear your prediction. That's probably the time when gold is worth more than just insurance.

The best current historical reference is gold's behavior during the 2008 financial crisis. Like all assets it took a hit (but small hit) yet provided one of the best recoveries after the temporary mad rush to cash. It did it's job and continues to do so in the aftermath.

jmski52

if we do go into a recession or bear market, what do you think gold can realistically get to if it's at $1,800 today?

At least two factors are in play during a bear market. If the stock market tanks in a slow economy, liquidity becomes a major factor which will cause all assets (including gold) will take a hit as derryb points out.

At the same time, the manipulators will do almost anything to keep gold from signaling a financial problem which would crash the dollar - but the global gold market has its own dynamics above & beyond what the Central Bank & JPM manipulators can control.

What we do know is that gold has been a consistent medium for wealth preservation for millennia. We also know that every fiat currency ever created - has failed due to over-production and its inevitable devaluation.

Plan accordingly.