How Silver bullion Premiums Are Calculated

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How Silver bullion Premiums Are Calculated

You want to buy silver bullion but are unsure how it is calculated. Firstly, the price you pay for an ounce comprises the silver spot price and the bullion premium. So, for example, a Silver Eagle is spot plus a bullion premium of 20%. But how do they get these figures?

The Difference Between Spot Price and Bullion Premiums

The spot price is the current price of silver traded on the global commodity market. While the premium added onto bullion is an added price charged for the bullion products over the current spot price. Hence, the calculation depends on five key factors:

  1. The Bullion Supply and Demand

The demand of the total amount of the supply is a significant influence on the bullion products premiums. Bullion dealers also need to balance their product inventory and profitability.

Too much inventory leads to high costs, while too little leaves them with angry customers. Further, the bullion market supply is affected by the fluctuating silver market and impacts the premium prices. 

As an example, you find in the Western hemisphere that when it is summer, there are calmer price patterns the supply tends to increase. As a result, you see precious metal sellers coming down with their prices to attract a market share.

While in other months, the silver prices are more volatile, leading to increased buying and selling. Hence, the bullion reacts the same way. Some will mark up the costs to prevent them from running out of stock or do it to capture profit.

  • It All Depends on The Economic Conditions

Even market events can affect the bullion premiums in local and global stages. For example, you may find that a bullion dealer in a small town boosts their prices to prevent running out of stock. While other countries losing local currency value at excessive rates buy bullion to preserve their wealth leading to higher premiums. Even financial crisis globally increases premiums as the demand spikes as options diminish.

  • The Price Depends on the Volumes Sold

Each seller needs to incur costs for each transaction from the time bought, overhead, or the payment process used. Hence, a single transaction for one ounce of silver can have similar transaction costs as a thousand-ounce transaction. So, higher volume transactions have their costs spread out, resulting in higher premiums than smaller purchases sold at a low ounce on high volume buys.

  • What Form of Bullion is Sold

The larger piece of silver bullion you buy, the premium cost per ounce in less. For example, it costs a mint less to make 100-ounce silver bars than 100 rounds of one ounce each. Furthermore, you find a vast difference between private and government mints.

For example, the mint charges $2 oz over the spot for each Silver Eagle coin they strike to sell in the global bullion dealers market. While a private mint sells silver rounds and bars in bulk for less than half the premium compared to government mints.

  • The Bullion Seller Objective Counts

Whether you deal with a large bullion dealer or a private dealer, they want to yield a high asking price for the bullion they sell. So when you want to buy silver bullion, consider your market share objectives, look at competitor strategies, and reflect the price equilibrium strategy. Hence, if a dealer sets his price too high, you can choose a lower-priced dealer.

When the bullion market experiences an normal demand, you find that about 80% to 95% of the silver bullion price is compromised of the current spot price.