Unlike other products you may buy, the price of precious metals changes by the minute. It can be complicated–and gets more complicated when you try to understand terms like “over spot” and “over melt.”
It sounds complicated, but these terms aren’t too bad. In essence, spot prices are the price at which a particular precious metal is selling on the stock exchange. The melt price is the value of the precious metals in a particular coin or round.
Why the difference? Some coins, like the American Silver Eagle, are more pure–they primarily contain precious metals. But others, like the Swiss 20 Franc, are composites.
These composites, because they aren’t as pure, are sold at melt. In other words, you are buying “only” the precious metals in them; the other materials would be removed by a refiner and discarded.
Dealers, including Provident Metals, will typically quote a price as “$X over spot” or “$X over melt,” which means you can buy or sell it at the melt or spot price PLUS X dollars.
The basic formula to find your spot price is:
(Spot Price + Premium) x Weight = Price over spot
because your item is pure and the premium will apply for every iota of the item or items you’ve purchased.
The basic formula for an over melt price is:
(Spot Price x Weight) + Premium = Price over melt
because your item is a composite, and the premium will only apply to those parts that are valuable.
For example, let’s look at a 1 oz Canadian Silver Maple Leaf. Imagining the spot price for silver is $20 and the premium being offered is $3 (to make the math easy), your formula would look like this:
($20.00 x .9999 oz) + $3 = $22.99
Because Canadian Silver Maples are more pure–they contain .999 fine silver–so you use the “over spot” formula to find the final price.
How does it work for a composite coin like the Mexican 50 peso? (Imagining the spot price for gold is $2,000 and the premium is $20, again for easier math.)
($2,000 x 1.2057 oz) + $20 = $2431.40
This coin includes other metals besides gold, so we use the “over melt” formula to find the value of only the gold content. If a person were to extract only the gold content from a Mexican 50 peso, the gold it contains would only be worth that melt price.
If you are buying your coin from Provident Metals, you can find the actual metal weight in the overview of the product. For other coins, ask your dealer or look up the actual weight on Google or one of the other online resources.
Exceptions
Because there are always exceptions:
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Junk Silver, even though it is a composite, is calculated using the “Over Spot” formula. It’s an industry standard……
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In times when a metal is in less demand, the premium can switch to a discount; rather than adding to the price, it is subtracted. Then the formulas are:
Price over spot
(Spot Price – Discount) x Weight = Price over spot
Price over melt
(Spot Price x Weight) – Discount = Price over melt
Summary
Generally, the more pure metals will be sold using the spot price, and coins containing a mix of metals will be sold at the melt price.
What are your thoughts?
Did this post help to clear up the confusion?
Do you prefer to own metals that are priced over spot or over melt?
Feel free to leave us a comment below, or drop us a line on our Facebook and Twitter pages today.
straight forward info; fairly close to what I thought it meant. thxs
I think your calculation and explanation are completely erroneous.
If you buy a tenth ounce bullion coin for a $10 premium the price over spot is $100.
Price over spot. Thank you. I recently bought 703 troy ounces of Morgan rounds from a neighbor for $8 an ounce (he needed cash fast), so I recently started buying rounds and bullion bars in bulk and thought I’ve been doing well…now I know it. Thank you for the accurate information. Sincerely: Greg Chaney
Pretty cool, thanks!