That’s because of something called a “premium.” For anyone interested in investing in gold and silver for the first time, understanding this premium and how it impacts what you’ll pay over the lower spot price is critical.

Here’s a quick guide to what a precious metals premium is—so when you’re ready to buy, you understand when paying a premium is worth it, and how much of one you’re willing to pay.

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What exactly is a premium in precious metals?

When shopping around for gold or silver, you may have noticed that not all dealers charge exactly the same price for exactly the same item. There’s a reason for this.

While tracking gold and silver through your favorite market app, you will see their market prices changing constantly. This number is called the “spot” price. It’s the live trading price—their current value, in other words. But it’s not the price you’ll pay.

Your actual cost to buy gold and silver comes with a markup called a “premium” (or expense ratio, depending on the form of your investment). Whether you’re buying physical metals from a dealer or a gold ETF through your brokerage account, you’ll always be subject to a premium. This cost is what pays the bills for the dealers, fund companies, and brokerages.

All to say, the premium is the difference between the spot price and the price you actually pay.

What’s included in a premium?

As you can see, premiums are not an arbitrary surcharge; they’re a necessary expense to cover the moving parts that get the metals to you. That doesn’t mean all premiums are fair—we’ll dive into that more shortly—but it’s worth knowing the main things that can affect your final price.

Here’s what you’re paying for beyond simple gold and silver:

• Minting and fabrication costs. Raw metals are nothing like what you actually buy. Refineries and mints spend a lot of money to extract and craft the pretty metals you browse online. There are costs for machinery, labor, quality control, and packaging.
• Dealer markup. Once the metals have been prepared for sale, they’re typically transported to dealers to sell. Dealers charge an additional premium for expenses like marketing, rent, and staff.
• Shipping and insurance. During these processes there are shipping and insurance costs, including security, which factor into the final premium as well.

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Why premiums vary by product

The premium you pay isn’t a flat rate across all gold and silver products. Let’s take a look at a few reasons why.

Cost to produce and sell

Items vary in expense to make—and sell. Typically, the easier something is to sell, the higher of a premium it’ll require because demand is high.

High-demand items are often recognizable coins minted by the government. A good example is the American Gold Eagle coin. Its value is clear, and it’s more versatile than many other items in the precious metals space. For example, you can buy them as part of a gold IRA (something that not all gold products are eligible for).

Rarity

On a note similar to demand, the premium you pay can also be driven by how collectable a coin is. Limited vintages, special designs, anniversary editions, etc. often bring a higher markup than generic bullion.

Item size

Smaller gold and silver pieces (you’ll often hear pieces smaller than a troy ounce referred to as fractional gold or silver) tend to have a higher premium per ounce. That’s because the cost to make them is similar to larger products. Compared to an item of twice the size, you’re getting half the metal but paying for virtually the same fabrication costs.

Why premiums vary by dealer

The premiums each dealer charges you are also dynamic. Here’s why.

Operating costs

Each dealer has unique costs for doing business. A large dealer with a few dozen employees will pay less for staff than a three-person operation; rent for a storefront in Topeka will likely cost less than one in Santa Monica; some dealers may operate entirely online.

The more a company incurs, the higher the premium it can justify.

Inventory-based risk

Any time a dealer is holding gold and silver, it’s effectively holding risk. That metal can decrease in value at any time. Dealers that carry a laundry list of gold and silver products may increase premiums to compensate themselves for the riskiness of carrying such a large inventory.

Customer profile

Precious metals dealers can also charge based on the affluence of their customer base. A dealer in Monaco may get away with charging higher premiums to buyers who value convenience over cost. Dealers that target more frugal buyers, on the other hand, will focus on keeping the premium as low as possible.

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How to find a fair premium

You’ll have a hard time discerning if a premium is reasonable by looking at the spot price of gold or silver alone.

Instead, you’ll need to shop around multiple dealers to get a sense of the average upcharge. Do this as quickly as possible to get the truest comparisons; spot gold and silver are ever-changing, and many dealers update their prices throughout the day. You’ll want to investigate based on the same spot price/

Take a look at perhaps five reputable dealers to get a good sense—then you might opt for the dealer with the lowest spread.

When are high premiums worth it?

Higher premiums aren’t always a bad deal. Again, they’re often dictated by circumstance (production cost of a specific product, recognizability, collector appeal, etc.). If you’re getting strong benefits, such as IRA eligibility or easy liquidity, the extra cost can be worth it. However, if the item you’re buying is famously difficult to resell, it’s likely that the premium isn’t worth it.

The takeaway

Premiums impact the price you pay for gold and silver in a big way. They are markups resulting from the expenses related to the process of getting precious metals from the mine into your hand (or brokerage account). From mining to refining to minting to selling, every link in the chain adds some sort of cost.

Frequently asked questions

How do buyback prices and dealer spreads relate to the premiums on gold and silver?

Buyback prices and dealer spreads give you an idea as to how much of the premium you’ve paid that you’ll forfeit when you sell. The closer the buyback price is to the dealer’s price tag, the lower your true cost for your metals.

How can you tell if the premium on a gold or silver product is reasonable?

To find whether the premium on a gold or silver product is reasonable, check multiple other dealers for the same product at the same time. It’ll give you an idea of what the spread should be. If your dealer’s premium is within range, it’s probably a fair deal.

Why do premiums on gold and silver spike during periods of high demand or market stress?

Premiums on gold and silver spike under one condition: a spike in demand. This can come from a period of inflation where investors are looking for a store of value, when spot prices surge, even when an industry that uses precious metals starts to boom. Dealers simply cannot keep up with demand, so they have the luxury of raising the price for their remaining inventory.

Do online gold and silver dealers charge lower premiums than local coin shops?

Some online dealers charge lower premiums than local shops, as there are costs associated with a brick-and-mortar location that they don’t have to pay. However, it’s not a rule that digital-only dealers will pass along savings to you.

Is it better to pay a slightly higher premium at a dealer with a stronger buyback policy?

It can absolutely be worth a (reasonably) higher premium if a specific dealer’s buyback policy meaningfully reduces the spread when selling it back. You may decide not to sell it back to the same dealer, anyway, but the option is nice to have.