why does bullion
cost more than spot?
it's all about perception vs. reality
This question comes up A LOT.
So in short here is the answer…
The Spot price of any precious metal is a perceived price in a moment in time for what investors believe a specific quantity of raw metal in a paper “contract” is worth.
It is basically a market ‘gambling’ price and not an actual price for which a finished coin, round, ingot, or item of jewelry can be purchased.
Here’s an example:
The only way to buy silver near spot price is to purchase a futures contract on the commodity exchange, let that contract mature, and then take delivery. A futures contract is for a 1,000 Troy ounce ingot. That is just a raw lump of metal that weighs approximately 70-lbs. You can’t do anything with it, except perhaps use it as a door stop.
When you take delivery at “spot price,” you discover that the bank will charge storage fees and delivery charges. So, in fact, the actual charge is well above spot. Even so, it is still just a 70 lb. lump of raw metal.
To make anything out of that silver, the ingot will have to be melted, then undergo a very involved twelve-step minting process.
Each step in the manufacturing process adds cost to the finished product. And each step in the process requires extremely powerful and costly equipment and labor cost. That’s true whether you are manufacturing silver earrings, bracelets, or coins. So, the manufacturing costs are virtually the same for a 1/10th oz. round as for a 1 oz. medallion.
IMPORTANT TO KNOW! –
When purchasing a futures contract on the commodity exchange, know that...
Article published by BULLIONR
The Spot price of any precious metal is a perceived price in a moment in time for what investors believe a specific quantity of raw metal in a paper “contract” is worth.
It is basically a market ‘gambling’ price and not an actual price for which a finished coin, round, ingot, or item of jewelry can be purchased.
Here’s an example:
The only way to buy silver near spot price is to purchase a futures contract on the commodity exchange, let that contract mature, and then take delivery. A futures contract is for a 1,000 Troy ounce ingot. That is just a raw lump of metal that weighs approximately 70-lbs. You can’t do anything with it, except perhaps use it as a door stop.
When you take delivery at “spot price,” you discover that the bank will charge storage fees and delivery charges. So, in fact, the actual charge is well above spot. Even so, it is still just a 70 lb. lump of raw metal.
To make anything out of that silver, the ingot will have to be melted, then undergo a very involved twelve-step minting process.
Each step in the manufacturing process adds cost to the finished product. And each step in the process requires extremely powerful and costly equipment and labor cost. That’s true whether you are manufacturing silver earrings, bracelets, or coins. So, the manufacturing costs are virtually the same for a 1/10th oz. round as for a 1 oz. medallion.
IMPORTANT TO KNOW! –
When purchasing a futures contract on the commodity exchange, know that...
- Thousands of people are all doing the same thing.
- So much so that more paper contracts are being sold than there is precious metal to fill those contracts!!!
- And, after it all is said and done with....you could just be stuck with a piece of useless paper.
Article published by BULLIONR
