Help on bullion premiums

cinque1543

Help me set my expectations on how dealers set bullion premiums in the following situations please.

Scenario #1

• I sell a less popular one-ounce bullion coin to a dealer who offers 1% below spot.
• A couple days later, I buy a more popular one-ounce bullion coin, which the dealer is selling at 4% above spot.
• After these two transactions, I still own the same amount of gold (one ounce), but I’ve paid a 5% round-trip commission.

Scenario #2

• I do the exact same as above, but in a single transaction. I hand my less popular coin to the dealer, and he hands me the more popular coin. Should I expect to pay the same 5% round-trip premium? Or because it’s a single transaction, will the premium somehow be a bit less?

I know this is a contrived example, and I know that dealer relationship and negotiation play a role. But in general, would you expect the total premium to be the same or different in the two scenarios?

Note that this is not a critique of dealers or premiums. Just trying to understand how things work.

MsMorrisine

bullion premiums are based off spot and are contrived to some extent

the honest ones will have and idea of their supply,demand and expenses

derryb

Bullion dealers are simply retailers of a product. Like all retailers they buy "wholesale," thus their lower than spot buy price. The major difference that sets them apart from other retailers is that the retail price of their product is more volatile, creating more risk or reward for them. But, like other retailers their inventory is very fluid. They don't have the same advantage for long term profit as does the stacker who holds longer and gets a greater profit as long as spot prices have increased. They simply move inventory as fast as they can.

To answer your question, the bullion dealer cares not if you conduct a single or two transactions. They normally stick to their buy price and their sell price. Some dealers may offer a volume discount.

cinque1543

@derryb said:

To answer your question, the bullion dealer cares not if you conduct a single or two transactions. They normally stick to their buy price and their sell price. Some dealers may offer a volume discount.

Very clear. Thank you.

softparade

I used to fight with myself on bullion vs appeal/popularity. I've settled on bullion. It's the weight I care about. Nothing else. Mostly lol

rte592

@derryb said:
Bullion dealers are simply retailers of a product. Like all retailers they buy "wholesale," thus their lower than spot buy price. The major difference that sets them apart from other retailers is that the retail price of their product is more volatile, creating more risk or reward for them. But, like other retailers their inventory is very fluid. They don't have the same advantage for long term profit as does the stacker who holds longer and gets a greater profit as long as spot prices have increased. They simply move inventory as fast as they can.

To answer your question, the bullion dealer cares not if you conduct a single or two transactions. They normally stick to their buy price and their sell price. Some dealers may offer a volume discount.

Agreed, But it doesn't cost you Anything to ask for less of a spread 😉

GoldFinger1969

Derry is right......dealers have a BID and ASK price just like folks quoting stock or bond prices.

blitzdude

@GoldFinger1969 said:
Derry is right......dealers have a BID and ASK price just like folks quoting stock or bond prices.

Only problem is the dealer spreads are astronomical compared to the stock and bond brokers. If I would have tried to trade physical like I have paper over the years I'd still be thousands of ounces in the rear. RGDS!

pmh1nic

Dealers are in business to make money not break even.

blitzdude

@pmh1nic said:
Dealers are in business to make money not break even.

as are investors. THKS!

dcarr

@blitzdude said:

@pmh1nic said:
Dealers are in business to make money not break even.

as are investors. THKS!

.

A click addict is speculator and/or gambler, not an "investor".

.

cinque1543

@blitzdude said:

Only problem is the dealer spreads are astronomical compared to the stock and bond brokers. If I would have tried to trade physical like I have paper over the years I'd still be thousands of ounces in the rear. RGDS!

FWIW, the average spread on stocks in the S&P 500 is about 5 to 20 basis points (i.e. 0.05 % to 0.20 %). On a big gold ETF such as GLD, the spread is even less. Of course, trades in those markets result in an electronic change of ownership, not a physical one.

GoldFinger1969

@cinque1543 said:
FWIW, the average spread on stocks in the S&P 500 is about 5 to 20 basis points (i.e. 0.05 % to 0.20 %). On a big >gold ETF such as GLD, the spread is even less. Of course, trades in those markets result in an electronic change of >ownership, not a physical one.

The average S&P 500 bid-ask spread is less than 1 bp. (0.01%).

derryb

.> @GoldFinger1969 said:

@cinque1543 said:
FWIW, the average spread on stocks in the S&P 500 is about 5 to 20 basis points (i.e. 0.05 % to 0.20 %). On a big >gold ETF such as GLD, the spread is even less. Of course, trades in those markets result in an electronic change of >ownership, not a physical one.

The average S&P 500 bid-ask spread is less than 1 bp. (0.01%).

spreads are tight on the stock exchanges because they are live, fluid markets. If you look at spreads when market is closed you see a much wider spread.

jdimmick

If price gets high enough where only the refinery is buying, dosnt matter what it looks like, a pretty high premium coin melts the same as a beat up dud. Experienced that in 2011, and it will happen again momentarily. pretty stuff is only good for trading into the market for/to other buyers, not burning it.

RedneckHB

@GoldFinger1969 said:

@cinque1543 said:
FWIW, the average spread on stocks in the S&P 500 is about 5 to 20 basis points (i.e. 0.05 % to 0.20 %). On a big >gold ETF such as GLD, the spread is even less. Of course, trades in those markets result in an electronic change of >ownership, not a physical one.

The average S&P 500 bid-ask spread is less than 1 bp. (0.01%).

It's a lot less than that. Most stocks trade in 100ths of a cent

coastaljerseyguy

@GoldFinger1969 said:

@cinque1543 said:
FWIW, the average spread on stocks in the S&P 500 is about 5 to 20 basis points (i.e. 0.05 % to 0.20 %). On a big >gold ETF such as GLD, the spread is even less. Of course, trades in those markets result in an electronic change of >ownership, not a physical one.

The average S&P 500 bid-ask spread is less than 1 bp. (0.01%).

Not true. The B/A spread on Apple & Microsoft is 1bp, but about 2.5 bps on Tesla, which is the average on each individual stock. However trading the whole S&P 500 is closer to 4.5bps. But this is a major improvement vs when I started on Wall St and the spread on the big board stuff was in 1/16 to 1/2 (50 cents). Penny stocks was up to 50%, lol.

Folks also should not confuse the stock price quote, in pennies, vs the bid-ask spread difference.