Difference spot price discount and premium
Time for some terminology from the gold and silver industry. Do you already know the difference between the terms 'spot price', 'discount' and 'premium'? We are happy to explain it to you.
What does spot price mean?
The spot price refers to the current market price of gold. So this is the current price at which you can buy or sell gold. "So why don't they just call this the price?", we hear you thinking. Well, this is because the spot price of gold and silver fluctuates because it is subject to various factors. Supply and demand, geopolitical events, changes in the currency markets and other market factors have a major impact on the price. Thus, depending on market dynamics and region, gold is sometimes traded at a price lower than the spot price.
The price of gold and silver changes regularly throughout the day. There are no specific regulations on how often the spot price can or may change. On the other hand, there are obviously rules and regulations that apply to the trading of gold derivatives and gold contracts on exchanges. This then is mainly legislation around trading hours, pricing and transparency to ensure open and fair trading.
What does discount mean?
The term discount in the precious metals industry indicates a price lower than the spot price. In other words, it means selling below the current market price. Always check carefully why the discount is in effect, as it can have several causes:
Lower purity: we express the purity of gold in carats. The purest gold - 100% purity - amounts to 24 carats. At a lower carat level, this means that the gold has been mixed with other metals. As a result, the gold has a lower intrinsic value.
Certain specifications not met: Gold and silver often have standard dimensions and specifications they must meet. When these are not correct, this is considered a quality problem. In other cases, the precious metal may not have the correct stamps or certifications. Even then, its value drops.
An important note here is that not all gold offered at a discount is of inferior quality. Sometimes a seller just wants to get to a transaction quickly, so they are willing to receive a lower price.
What does premium mean?
When a premium applies, it means that you have to pay an additional amount on top of the current market price of the gold or silver. It happens frequently that a premium of count. It often covers several costs arising from the production, distribution or sale of precious metals. What costs are we talking about?
Production costs: By this we mean the cost of raw materials, labor provided and production processes. For example, when it comes to gold or silver jewelry, you have the manufacturing cost of the jeweler who manufactured the jewelry.
Distribution: When gold is sold, it must be transported. This cost - like storage and insurance costs - is factored into the premium.
Collectible value: Some gold and silver items have a high collectible value. Consider, for example, a rare gold coin. This causes a higher premium to apply on such items when sold.
Ready to invest in gold or silver?
Are you itching to invest in gold yourself now that you've caught up with the terminology? Then be sure to read our blog "Which form of gold is best to invest in?". Or surf to our webshop and see what we have to offer.
