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Premium is the amount that a buyer pays over and above the spot price of gold or silver. The spot price is the current market price of a commodity, while the premium reflects the added value of buying a particular product, such as a bullion coin, in a more convenient form. Understanding how to calculate premium from spot price is important for any investor who wants to make informed decisions when buying precious metals.
Step 1: Determine the Spot Price
The first step in calculating the premium is to determine the spot price of the commodity you are interested in buying. The spot price of gold can be found here. It is important to note that the spot price can fluctuate on a daily basis, so it is advisable to check the current spot price before making a purchase.
Step 2: Determine the Minted Product Price
Next, determine the price of the specific minted product you are interested in buying. For example a 1oz gold coin contains 31.1g of 999.99 gold, so it’s spot price is equivalent to 1oz in 999.99 gold. Make sure to check the weight, purity, and denomination of the product you are considering, as these factors will influence the price.
Step 3: Calculate the Premium
To calculate the premium, simply subtract the spot price from the price of the minted product. This difference represents the premium that you will pay for the added value of buying a more convenient form of the commodity. For example, if the spot price of gold is $1,500 per ounce and the price of a 1-ounce gold coin is $1,600, the premium would be $100 ($1,600 – $1,500 = $100).
Step 4: Compare Premiums
It is important to compare the premiums charged by different dealers for the same product. This will allow you to find the best deal and get the most for your money. Keep in mind that the premium can vary significantly depending on the dealer, so it is important to shop around.
In conclusion, calculating premium from spot price is a straightforward process that will help you make informed decisions when buying precious metals. By following the steps outlined above, you will be able to determine the premium you are paying and make an informed decision about whether to buy the product or not.