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.
Depending on their size and significance, market events can affect bullion premiums local to global stages.
- 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.
Visualizing the Uranium Mining Industry in 3 Charts
These visuals highlight the uranium mining industry and its output, as well as the trajectory of nuclear energy from 1960 to today.
When uranium was discovered in 1789 by Martin Heinrich Klaproth, it’s likely the German chemist didn’t know how important the element would become to human life.
Used minimally in glazing and ceramics, uranium was originally mined as a byproduct of producing radium until the late 1930s. However, the discovery of nuclear fission, and the potential promise of nuclear power, changed everything.
What’s the current state of the uranium mining industry? This series of charts from Truman Du highlights production and the use of uranium using 2021 data from the World Nuclear Association (WNA) and Our World in Data.
Who are the Biggest Uranium Miners in the World?
Most of the world’s biggest uranium suppliers are based in countries with the largest uranium deposits, like Australia, Kazakhstan, and Canada.
The largest of these companies is Kazatomprom, a Kazakhstani state-owned company that produced 25% of the world’s new uranium supply in 2021.
As seen in the above chart, 94% of the roughly 48,000 tonnes of uranium mined globally in 2021 came from just 13 companies.
|Rank||Company||2021 Uranium Production (tonnes)||Percent of Total|
|3||🇷🇺 Uranium One||4,514||9%|
|6||🇺🇿 Navoi Mining||3,500||7%|
|9||🇦🇺 General Atomics/Quasar||2,241||5%|
|11||🇬🇧 Energy Asia||900||2%|
France’s Orano, another state-owned company, was the world’s second largest producer of uranium at 4,541 tonnes.
Companies rounding out the top five all had similar uranium production numbers to Orano, each contributing around 9% of the global total. Those include Uranium One from Russia, Cameco from Canada, and CGN in China.
Where are the Largest Uranium Mines Found?
The majority of uranium deposits around the world are found in 16 countries with Australia, Kazakhstan, and Canada accounting for for nearly 40% of recoverable uranium reserves.
But having large reserves doesn’t necessarily translate to uranium production numbers. For example, though Australia has the biggest single deposit of uranium (Olympic Dam) and the largest reserves overall, the country ranks fourth in uranium supplied, coming in at 9%.
Here are the top 10 uranium mines in the world, accounting for 53% of the world’s supply.
Of the largest mines in the world, four are found in Kazakhstan. Altogether, uranium mined in Kazakhstan accounted for 45% of the world’s uranium supply in 2021.
|Uranium Mine||Country||Main Owner||2021 Production|
|Cigar Lake||🇨🇦 Canada||Cameco/Orano||4,693t|
|Inkai 1-3||🇰🇿 Kazakhstan||Kazaktomprom/Cameco||3,449t|
|Husab||🇳🇦 Namibia||Swakop Uranium (CGN)||3,309t|
|Karatau (Budenovskoye 2)||🇰🇿 Kazakhstan||Uranium One/Kazatomprom||2,561t|
|Four Mile||🇦🇺 Australia||Quasar||2,241t|
|Olympic Dam||🇦🇺 Australia||BHP Billiton||1,922t|
|Central Mynkuduk||🇰🇿 Kazakhstan||Ortalyk||1,579t|
|Kharasan 1||🇰🇿 Kazakhstan||Kazatomprom/Uranium One||1,579t|
Namibia, which has two of the five largest uranium mines in operation, is the second largest supplier of uranium by country, at 12%, followed by Canada at 10%.
Interestingly, the owners of these mines are not necessarily local. For example, France’s Orano operates mines in Canada and Niger. Russia’s Uranium One operates mines in Kazakhstan, the U.S., and Tanzania. China’s CGN owns mines in Namibia.
And despite the African continent holding a sizable amount of uranium reserves, no African company placed in the top 10 biggest companies by production. Sopamin from Niger was the highest ranked at #12 with 809 tonnes mined.
Uranium Mining and Nuclear Energy
Uranium mining has changed drastically since the first few nuclear power plants came online in the 1950s.
For 30 years, uranium production grew steadily due to both increasing demand for nuclear energy and expanding nuclear arsenals, eventually peaking at 69,692 tonnes mined in 1980 at the height of the Cold War.
Nuclear energy production (measured in terawatt-hours) also rose consistently until the 21st century, peaking in 2001 when it contributed nearly 7% to the world’s energy supply. But in the years following, it started to drop and flatline.
By 2021, nuclear energy had fallen to 4.3% of global energy production. Several nuclear accidents—Chernobyl, Three Mile Island, and Fukushima—contributed to turning sentiment against nuclear energy.
|% of Total Energy|
More recently, a return to nuclear energy has gained some support as countries push for transitions to cleaner energy, since nuclear power generates no direct carbon emissions.
What’s Next for Nuclear Energy?
Nuclear remains one of the least harmful sources of energy, and some countries are pursuing advancements in nuclear tech to fight climate change.
Small, modular nuclear reactors are one of the current proposed solutions to both bring down costs and reduce construction time of nuclear power plants. The benefits include smaller capital investments and location flexibility by trading off energy generation capacity.
With countries having to deal with aging nuclear reactors and climate change at the same time, replacements need to be considered. Will they come in the form of new nuclear power and uranium mining, or alternative sources of energy?
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