Connect with us

Mining

How are Silver and Gold Bullion Premiums Calculated?

Published

on

How are Silver and Gold Bullion Premiums Calculated?

How are Silver and Gold Bullion Premiums Calculated?

The price paid for each ounce of bullion is composed of the metal’s spot price and the bullion premium.

Here’s the price composition of some common rounds:

  • Silver Eagle: 80% spot price / 20% bullion premium
  • Silver Canadian Maple Leaf: 84% spot price / 16% bullion premium
  • Gold Eagle: 96% spot price / 4% bullion premium

How are these bullion premiums determined? How can bullion buyers take advantage of the lowest possible premiums?

Difference Between Spot Prices and Bullion Premiums

Spot Price: The current price per ounce exchanged on global commodity markets.

Bullion Premium: The additional price charged for a bullion product over its current spot price.

The calculation for bullion premiums depends on five key factors:

  • The current bullion market supply and demand factors.
  • Local, national, and global economic conditions.
  • The volume of bullion offered or bid upon.
  • The type of bullion products being sold.
  • The bullion seller’s objectives.

Bullion Supply and Demand

The total amount of supply and demand of bullion is a major influence on bullion product premiums.

Bullion dealers are businesses, and they are actively trying to balance product inventory and profitability. Too much inventory means high costs. Too little inventory means angry customers. Fluctuations in the gold and silver markets affect bullion market supply, and this impacts premium prices.

For example, in the Western hemisphere during the summer, calmer price patterns mean the bullion supply tends to increase. Sellers mark down their prices to attract market share.

During other months, silver and gold prices tend to have more volatility. This leads to increased buying and selling, and bullion sellers react accordingly. Some may mark up prices to prevent running out of inventory, or to capture profits.

Economic Conditions

Depending on their size and significance, market events can affect bullion premiums local to global stages.

Examples:

  • In a small town with only one brick and mortar coin shop, the dealer may boost their premiums to guard against running out of inventory.
  • In a country like Venezuela, where the local currency is losing value at an extreme rate, locals may opt to buy bullion to preserve their wealth. This means higher premiums.
  • At a global level, in the event of a large crisis (similar to the 2008 Financial Crisis), it is likely premiums would increase significantly as demand spikes and options diminish.

Volumes Being Sold

Every seller incurs costs on each transaction such as time, overhead, or payment processing costs. For a seller, a single transaction for 1 oz of gold may have similar transaction costs as a 1000 oz transaction.

Therefore, transactions with higher volumes of bullion have their costs spread out. As a result, premiums tend to be higher on small volume purchases, and lower per oz on high volume buys.

Form of Bullion for Sale

As a general rule, the larger the piece of bullion is, the less the premium costs are per oz.

It costs a mint far less to make one 100 oz silver bar, vs. 100 rounds of 1 oz each.

There is also typically a significant difference in premiums between government and private mints.

For example the most popular bullion coins in the world are American Silver and Gold Eagle coins. The U.S. Mint charges a minimum of $2 oz over spot for each Silver Eagle coin and +3% over spot for each Gold Eagle coin they strike and sell to the world’s bullion dealer network.

A private company like Sunshine Minting will sell their silver rounds and bars in bulk for less than ½ the premium most government mints will sell their products for.

Bullion Seller’s Objectives

Whether the seller is a large bullion dealer or a private individual, they will almost always want to yield the highest ask price they can get for the bullion they are selling.

That said, just because one wants to receive a large premium on the bullion they are selling, that doesn’t necessarily mean the market’s demand or willing buyers will comply.

Dealers must consider these factors when setting premiums:

  • Market share objectives
  • Competitor strategies
  • Price equilibrium strategy

If a dealer sets its price too high, buyers will likely choose to go to a lower priced competitor.

If a dealer sets their price too low, they could end up selling out of inventory without garnering enough profit margin to pay for the company’s overhead costs.

Dealers and sellers are both typically trying to find the price equilibrium “sweet spot” where the time required to complete a sale is minimized and the seller’s profit is maximized.

This is more difficult than it sounds, as there can be thousands of factors at play when establishing the best possible premium to charge in line with one’s overall objectives.

Price Composition for Bullion Products

When bullion markets are experiencing normal demand, about 80-95% of silver bullion’s price discovery is comprised of the current spot price.

For gold, spot prices approximately comprise of 95-98% of gold bullion’s overall price discovery.

Embed This Image On Your Site (copy code below):
Click for Comments

Mining

White Gold: Mapping U.S. Lithium Mines

In this graphic, Visual Capitalist partnerered with EnergyX to explore the size and location of U.S. lithium mines.

Published

on

Teaser graphic of a map that shows the sizes of the top U.S. lithium mines.

Published

on

The following content is sponsored by EnergyX

White Gold: Mapping U.S. Lithium Mines

The U.S. doubled imports of lithium-ion batteries for the third consecutive year in 2022, and with EV demand growing yearly, U.S. lithium mines must ramp up production or rely on other nations for their supply of refined lithium.

To determine if the domestic U.S. lithium opportunity can meet demand, we partnered with EnergyX to determine how much lithium sits within U.S. borders. 

U.S. Lithium Projects

The most crucial measure of a lithium mine’s potential is the quantity that can be extracted from the source.

For each lithium resource, the potential volume of lithium carbonate equivalent (LCE) was calculated with a ratio of one metric ton of lithium producing 5.32 metric tons of LCE. Cumulatively, existing U.S. lithium projects contain 94.8 million metric tons of LCE.

RankProject NameLCE, million metric tons (est.)
1McDermitt Caldera21.5
2Thacker Pass19.1
3Tonopah Flats18.0
4TLC Lithium10.7
5Clayton Valley (Century Lithium)6.3
6Zeus Lithium6.3
7Rhyolite Ridge3.4
8Arkansas Smackover (Phase 1A)2.8
9Basin Project2.2
10McGee Deposit2.1
11Arkansas Smackover (South West)1.8
12Clayton Valley (Lithium-X, Pure Energy)0.8
13Big Sandy0.3
14Imperial Valley/Salton Sea0.3

U.S. Lithium Opportunities, By State

U.S. lithium projects mainly exist in western states, with comparatively minor opportunities in central or eastern states.

StateLCE, million metric tons (est.)
Nevada88.2
Arkansas4.6
Arizona2.5
California0.3

Currently, the U.S. is sitting on a wealth of lithium that it is underutilizing. For context, in 2022, the U.S. only produced about 5,000 metric tons of LCE and imported a projected 19,000 metric tons of LCE, showing that the demand for the mineral is healthy.  

The Next Gold Rush?

U.S. lithium companies have the opportunity to become global leaders in lithium production and accelerate the transition to sustainable energy sources. This is particularly important as the demand for lithium is increasing every year.

EnergyX is on a mission to meet U.S. lithium demands using groundbreaking technology that can extract 300% more lithium from a source than traditional methods.

You can take advantage of this opportunity by investing in EnergyX and joining other significant players like GM in becoming a shareholder.

You may also like

Subscribe

Continue Reading
NOVAGOLD. Pure Gold. Precious Opportunity.

Subscribe

Popular