Melt Value vs. Spot Price: Understanding the Difference

If you’ve begun to venture into the field of investing in precious metals, you have also taken on the task of learning a variety of new terms and phrases related to the trade. Two common ones that people become confused by early on are “coin melt value” and  “coin spot price.”

What do the two of these mean, what is their significance, and why do we need to differentiate between the two of them? Let’s take a closer look and see why it’s beneficial to remember these two terms.

The Basics of Bullion

Bullion is a term often used to describe a basic coin or bar made of a precious metal, such as silver or gold. A bullion item is valued dependent upon its price at the moment—the “spot price”—and what it would be bought or sold for with immediate delivery. This differs from futures prices, which are what items can be purchased for delivery in the future.

If you are looking to purchase an asset such as an American Gold Eagle coin or Silver Proof rounds right now, then you’ll want to consider the current spot price of the precious metal itself. Spot price is what the item will be valued at upon purchase.

It should be noted that other factors will affect the final price of the asset, such as the premium instituted by the facility where the item was minted and a possible dealer markup. This calls for further reason why you, as a buyer, should research dealers before purchasing, simply to determine the differentiation between markups.

How Melt Value Is Different

The benefit of bullion is that items that are minted at one ounce often sell at the spot price because there is an identical value between a gold one-ounce coin and a gold one-ounce bar. The same goes for identical silver assets.

The point where coin melt value differs from coin spot price is that melt value is determined by the amount of a precious metal contained within an asset. For this reason, the coin melt value is calculated by the content of a precious metal multiplied by the spot price of said metal. In an equation format, we would calculate this as such:

standard mass of precious metal x precious metal spot price = melt value

For example, let’s say we have (a) one ounce of gold and (b) 0.80 ounces of gold bullion. Let’s determine the melt value of each, approximating the spot price of gold to be about $1,300/ounce:

(a)  1 oz. of gold x $1,300/ounce of gold = $1,300

(b)  0.8 oz. of gold x $1,300/ounce of gold = $1,040

Because (a) is one ounce of gold bullion, the melt value and the spot value are essentially the same; however, because (b) is less than one ounce, the melt value is going to be less than the spot price.

The Worth of Coin Melt Prices and Premiums

You might be wondering why you would ever need to worry about the melt price, as in, “If I bought a one-ounce silver round, why would I need to worry about there being a differentiation between that and the spot price? The value should be the same!”

Well, age and degradation becomes a concern. Furthermore, antique coins are usually purchased in bulk to melt them down for the total value of their precious metal content. The latter point is especially important when it comes to rare and notable coins, as the price for which they are purchased will often not be the same as they will be sold for. The reason comes down not only to the shift in spot prices, but it also comes down to premiums.

While premiums for gold and silver bullion tend to be fairly low, they are often increased for rare and collectible coins. The reason for this effect is the story provided to the coin—the worth of its narrative.

However, when selling coins, buyers usually purchase them for their melt value, as they are less concerned with the story, especially for coins that are not as notable.

At Provident Metals, we’re here to provide you with the highest quality precious metal assets and information to help you make the smartest investments. If you have any further questions regarding spot prices, consider reading up on our Bullion Buying Guide.