The price of silver and gold bullion fluctuates with the whims of the market, and is needlessly complicated with economic jargon like “cost to carry”, “backwardation”, and “spot price”. In this article we will take a closer look at how the price of gold and silver bullion is determined, and how you can maximize your investment.
What is Spot Price?
Spot price is loosely defined as the explicit price for a commodity at a given point in time. “Spot price” is not unique to precious metals, indeed, the term is applied to most investments. Spot price is used as the “base price” for a transaction, or the price onto which a premium is applied. The premium represents the gross profit made by the broker or retailer. From the gross profit, however, the broker or retailer pays cost of storing the inventory, interest, personnel, labor, and other associated business costs.
The savvy investor will use premium as an important metric for doing business; the lower the premium, the greater the purchasing power of the investor. Interestingly, premium provides the investor some insight into the operational efficiency, and the pricing philosophy of a company. Efficient companies will operate with lower overhead for a given size and structure, and customer-centered companies will pass the savings from operational efficiency to customers.
What Affects Spot Price?
The spot price of gold and silver is subject to the basic economic principles of supply and demand. Precious metals are finite, non-renewable resources. Unlike timber or agricultural products, we do not possess the technology to manufacture or grow more silver or gold. Supply, therefore, is determined by the rate at which gold and silver ore are mined and refined, and the supply is inherently limited.
The demand for ores crosses multiple economic and technological lines. Gold, silver, platinum, palladium, and copper are all used industrially, in advanced technology and robotics, and socially in jewelry and consumables. The bullion industry represents only a percentage of the total precious metals industry. As demand in the other sectors of the precious metals industry increases, so too does the price for gold and silver bullion.
Additionally, political uncertainty, economic instability, and social conflict can significantly increase the price of gold and silver bullion. Precious metals are considered by many investors to be “safe-haven” investments, or investments that will maintain or increase in value during difficult social or political times.
How to Invest in Bullion
Like every investment, gold and silver carry inherent risk. Because the price of this commodity fluctuates in time, it is possible for the price to drop after you purchase, so it is important to think deliberately about the level of risk you are willing to assume. Provident Metals provides a weekly report that reviews recent economic reports that affected changes in spot, and also reports that are expected to impact spot price in the near future.
When buying physical bullion, choose a retailer that maximizes operational efficiency in order to pass significant savings to the customer. Provident Metals – The People’s Bullion Dealer was founded on the philosophy of placing the customer first. This principle is evident in the lean and dynamic business structure we employ, the innovative policies (including free shipping and same day shipping) we employ, and the consistency with which we offer bullion with the lowest premium.
Also consider the type of bullion that you are purchasing. Gold and silver bullion minted by a sovereign government, such as the American Silver Eagle or Canadian Silver Maple, will have a higher premium than bullion minted by privately owned and operated mints. Sovereign bullion is preferred by many investors because the metal purity and weight are guaranteed by the minting government. Also, many sovereign minted coins carry a legal tender value. Privately minted bullion, such as the Provident Prospector, is considerably less expensive, and if it is manufactured by an ISO9001 mint, the weight and purity are also guaranteed.
If you wish to invest in physical bullion without taking possession of it, consider investing in allocated gold and silver. Allocated bullion allows you to buy, sell, and trade bullion at incredibly low premiums without taking physical possession of it. Our sister company, Elemetal Vault, provides an easy and innovative trading platform. Register for a free account today, and start investing like an expert!
Our Commitment to You
Provident Metals is committed to our customers. We realize, and appreciate that the bullion we sell is more than a consumable product; it’s an investment in your financial independence and security. We will consistently strive to meet your high expectations, and offer the highest quality bullion at the most accessible price.
Take a look at the best priced silver rounds in the industry, and give our customer service representatives a call today at 800-313-3315!
I can drive two miles to a coin shop and buy silver 1.25 over spot. No issues and do not need to go online to have silver anytime
Wow. Your explanation of spot pricing certainly leaves quite a bit out of the equation. Supply and demand of physical bullion has so little to do with spot pricing that it’s almost not worth mentioning. Demand for paper silver and gold as well as futures contracts drives prices. And with leverage in those markets at over 300 oz of paper to 1 oz of physical, it’s hard not to look at the whole thing as a giant case of fraudulent price suppression. But alas, when confidence actually does shake the markets/economy, those of us with physical will be happy little campers since there is so little incentive to actually mine physical these days. Sad that my retirement savings has to go poof to see a nice return on my bullion, but I’m happy to have that kind of balance in my portfolio.
Thanks for your comment, and you’re right, spot price is an incredibly complex entity. You could also have mentioned foreign and domestic currency policy and manipulation, subversive price fixing, etc., but we wanted to give our readership a brief overview and outline some of the more influential and readily measurable forces that determine spot price. We’re glad to hear that you are a fellow stacker, keeping fighting the good fight, and let us know how we can help!
Well I already knew “spot price” and “cost to carry” but I never heard backwardation? It wasn’t explained in the article so I had look it up and at the sametime I learned backwardations opposite Contango. Thanks for making me learn some new words Provident folks. Cheers!