New investors to precious metals may be understandably confused about the pricing situation and they may think: “there is one price called the spot price and one price that is what I have to pay to acquire the precious metal I want and that is always more than the spot price, why?”. Regardless of what prices are asked for precious metals, the spot price is always highlighted and a premium is mentioned. “Spot + $X.XX” is typically how the price is represented so a buyer knows what they are paying in excess of the spot price. What is a spot price, a premium, and the actual market price paid for a precious metal?
A spot price of a precious metal, or any commodity, is the price at which a commodity may be bought and sold right now, as opposed to a date in the future that is typically measured in grams, ounces, kilos, and pounds. Precious metals are bought and sold in predetermined weights and from major producers through major commodity exchanges like COMEX via contracts that are typically in much larger amounts than the average consumer would want or could afford. Mints then process the precious metals, typically in smaller quantities, to be resold to investors. The future is an important distinction in this examination. The spot price is the NOW price but there is also a market trading futures prices. The futures market is effectively the market trying to guess where prices will go in the future with participants making bets to hedge their operations or for speculative, profit-seeking reasons. The origin of the spot and futures market pricing was in farmers and commodity producers along with buyers of their products for resale (think large food producers and manufacturers) wanting to have a price they could agree on now and plan around for the future so they can have some stability and view into the future to ensure their enterprises were sustainable and profitable.
The difference between the spot price and the market price is called the premium. The premium is justified as the cost to the end consumer for the middleman (Mint/Dealer) taking possession, processing (if needed), and distributing the precious metals on to the end buyer. Premiums can vary greatly between different mints and dealers. Generally, as close as one can go to the producer, the better deal one will get with the exception of buying in the aftermarket, P2P marketplace. The secondary market of P2P transactions between precious metals investors/holders provides another opportunity to acquire good deals as sellers are incentivized to sell with lower premiums or no premiums compared to mints/dealers as mints/dealers are not going to pay them better. Both buyer and seller can retain higher value from transacting together in the secondary market.
The market price is simply what mints, dealers, and P2P sellers of precious metals are able to command in the market for the precious metals they are selling and it is of course dictated by physical demand of buyers like any market. The exact market prices for a given weight of a precious metal are not easy to determine as all types of sellers have different economics and premium choices and the products differ in perceived quality to the end buyer (ex. a generic silver round vs. an American Silver Eagle). However, one can determine a general range of a market price on a specific precious metals item, say a one ounce .999 Silver American Eagle, by surveying a group of major mints/dealers and checking P2P marketplaces. Ultimately, online marketplaces with many participants (the more the better), offer the best chance for finding the true market price in the precious metals marketplace.
Where Bullion TP Fits In
Bullion TP’s goal is to become the premier Patriot-owned marketplace for the aftermarket buying and selling of precious metals, offering both buyers and sellers a unique opportunity to buy at lower prices than mint/dealer premiums and for sellers to obtain higher values than mints/dealers would pay them. Offering lower commission fees than our competitors helps get the market closer to its true price. As ambitious as it may be, the longer term goal is to be the market maker through the marketplace itself, dictating the spot price upwards through real physical demand, not the faux demand currently represented by paper contracts in the commodity market system.
We certainly are not where we need to be with having enough market participants to discover the true market price, but Rome was not built in a day and that is where folks like you come in to help us get there. If you want to see the success of a new marketplace that is the anti-eBay in terms of values and concern for customers and that has a great vision for all participants in the precious metals market, we need your help to get there by simply registering as a user to get us closer to delivering the value we know we can with enough participants in the marketplace. For a long time now the world has needed an online marketplace focused primarily on precious metals and related valuables so it can be tailored to this specific market and its needs. Precious metals are far too important to be lumped together on a site that also sells socks, Pokemon, and comic books, as important as those items may be to people. Precious metals are money, they represent the People’s past work and future hopes. Bullion TP hopes to be that online marketplace and we’d love to have you join us on this journey.