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Question about PM coin values vs. underlying bullion value
daverickey
Posts: 53 ✭✭
If I buy a gold coin for $1,200 on a day when the spot price of gold is $1,000, can I then call the 20% difference a 'collector premium' and then assume the 20% is roughly a constant spread as the underlying bullion value goes up or down? If not, is there a good rule of thumb on that spread?
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The spread, and its ratio to the underlying price of the bullion is impossible to predict into the future. As the underlying bullion value drops, the spread my increase as a dollar amount, stay the same, or drop right along with it. Very rarely though will a spread stay constant as a percentage or ratio.
Is it your experience that generally the spread goes up, or down, or is relatively random and coin-dependent?
Dave
<< <i>Thanks for the quick replies.
Is it your experience that generally the spread goes up, or down, or is relatively random and coin-dependent?
Dave >>
Relatively random and coin-dependent for sure. Always.
Let's use silver eagles as an example:
When silver was $10 an ounce a few weeks ago, eagles tended to sell for about $16, or a 6$ premium. Now silver is around $12, an ounce, and the eagles still sell for around $16. A $4 premium. Note a different dollar amount, different ratio, but same end sell price.
Now gold eagles, when gold was $800 an ounce a couple months ago, gold eagles were anywhere from 900-940 each. With gold 900 an ounce, eagles tend to hover around 1000 an ounce.
Different dollar amount, different ratio, different sell price.
No way to predict it. We can sometimes make educated guesses based on data from the most recent 90 days or so, but there is no such thing as a rule of thumb about the whole thing.
NOTE: Dollar amounts used are rounded for purposes of an easy to illustrate an example and are not exact.
Best recent example is action of American Platinum Eagles.
During spike in Platinum from $1000-$2000 the premium over spot virtually disappeared.
I'm not so sure about that. The spread tends to increase when prices are moving significantly in either direction, I think. Dealers don't like to take huge risks. And why bother to pretend to be competitive when there are lots of buyers and sellers around?
OTOH, when the prices aren't moving much, and particularly when they've been low for awhile, the spreads tend to shrink as the market becomes more competitive. When nobody wants silver, 90% will frequently sell for less than melt.
Premiums reflect both volatility and availability. As the price of platinum rose to new heights last year, the premiums did indeed shrink, but mainly because the attractive prices flushed out alot of Plats, which created competition among the sellers and thereby reduced the premiums.
Just my take on it.
I knew it would happen.
One thing in the equation does remain relatively constant: When demand grows or supply shrinks, premiums go up. When supply booms and or demand shrinks, competition sets in and premiums shrink. Now, guessing when and how each of those will happen................... no one knows.