Ep.4 Season 2 - Buying Gold and Silver - Understanding the Spot Price, Premiums and Total Spread

hi I'm marki AXI welcome back to inside the vault following season 1 we did receive a lot of emails from viewers asking questions about how the spot price works how premiums work how total spreads work we used all these terms in some of our episodes and I realized that maybe some newer investors to precious metals didn't quite understand how the pricing mechanism works so I wanted to take the time today and explain when you're buying gold and silver how that total cost is determined and when it comes time to selling your gold and silver how that price is determined and what you should expect to receive for your metals so join me today inside the vault as we talk about spot price premiums discounts and total spreads [Music] [Applause] [Music] before the advent of live trading for precious metals people relied on what was called the London fixed price in the case of gold it was posted twice a day once in the morning once in the afternoon hours in the case of silver it was posted once now that we have access to real-time information whether you be in Toronto whether you be in Singapore people rely on what's called the spot price the spot price is the live real time value of one ounce of pure precious metals whether that be gold silver platinum palladium or rhodium you'll see the price of gold and silver communicated across a variety of different means whether it be on your television screen during the evening news online on a financial website or even on your mobile device now it is important that you understand when you look at the spot price usually there's actually two prices that are being shown one is the spot bid price which represents what buyers are willing to pay or use that as an indication of what buyers are willing to pay for the precious metals and the other side of that is the spot ask which is the basis of what I'm asking from you when I'm selling you precious metals so the bid and the ask are the two numbers that you're going to be seen move and change in real time representing that one pure ounce of gold silver or platinum palladium or rhodium now that we understand that the spot price represents one pure ounce of a precious metal why does it cost the retail investor more than the spot price to buy a bar or a coin and the answer to that question is what we call the premium the premium is the difference between the spot price which is the basis and the total price that the retail investor is going to end up paying for their product every point along the supply chain from the mint that's producing the product to the shipping cost to deliver the precious metals to a distributor from the distributor down to the retailer and then finally on to the end consumer that entire supply chain is paid for in what's called the premium all of those players all of the members of the supply chain are actually making their living off of that that premium and you know depending on the profit margins that they're trying to achieve depending on the shipping cost of silver versus gold is going to affect that final price that the investor is pain the next thing that you need to understand about buying and selling precious metals is that when it comes time to sell you're also going to be paying a price or what we call a discount usually below the spot bid price so just like we had when you're purchasing precious metals the spot ask plus a premium you can generally expect that when you're selling you're going to have the spot bid - what we call the discount the discount is where all of the active players involved in the transaction are making their profit margins in summary before we move on to total spread you're gonna pay a premium when you purchase and a slight discount when you sell most importantly and often forgotten is that you need to look at the whole picture when buying and selling through a lifetime that you're gonna hold those precious metals because if you're only looking at one side of the transaction you might not realize that the product that you chose to buy isn't gonna have a good resale value a little bit like when you buy an automobile some automobile brands have a better resale value down the line there are some precious metal products that have better reefs than others and we're gonna talk a little bit about that in a moment but that entire lifetime of owning the precious metals from purchased to sale the number that you're looking to calculate there is what we call the total spread the total spread is the difference between the total cost of the precious metal product that you bought and the total resale value or price that you got when you sold it from that top number to that final number is a total spread the total spread is actually the most important figure to consider when you're looking at buying those products for your portfolio so the question now is why do some products have a better total spread than others if they're all made of pure gold or pure silver or some not pure but still sold as bullion products why would some be more advantageous than others well the answer is quite complex some products being more costly to produce others be more cost effective to produce you have to take into consideration where the product is being manufactured is it being manufactured in Europe and then sold into the North American market for example is that producer very efficient they've upgraded all of their technologies inside the mint all of these things come into play when calculating premiums discounts and total spreads what I've done to make your lives a little bit easier is I've compiled a list of the ten best products in terms of total spreads we're not only looking at the best premiums for you to save a little bit of money upfront but we're also taking into consideration the best buyback prices for you down the line ultimately if your goal of investing in precious metals is to maximize your return you're looking at this investment strictly from a cost and reward point of view so your goal is going to be to minimize your total spread as much as possible now if you're a collector or a hobbyist and you're buying precious metals more for their collectability or just because you like the coins and you enjoy them then you might not be worried about a products premium or total spread you might be willing to pay a little bit more in that case but again if you're looking to buy this for the long term and to maximize your returns you definitely want to run that math to understand the total spread of the products that you're buying because the difference between a total spread of 3% and 5% spread out over a lifetime and you know what could amount to hundreds of thousand dollars that you're investing in precious metals is a significant difference so you definitely want to take that into consideration one thing that people often ask me about is why is the premium for silver so much higher than gold in terms of percentage it's very typical when you're buying a one ounce gold coin for example you'll pay somewhere around three to four percent over spot but if you're buying a one ounce silver coin you're gonna pay somewhere around nine or even ten percent over the spot price it's actually really simple there's fixed costs involved to produce the products by the Mint's the cost to produce a gold coin and to produce a silver coin are relatively you know very similar the striking process to produce that finished product is is relatively the same other than the fact they're producing a lot more silver coins in terms of volume and when you apply that fixed cost to the value of the commodity that number that fixed cost is going to be much lower in terms of percentage for gold then and will for silver because gold is valued right now at about eighty times more than silver so it's not a ploy used by dealers to make more money when selling silver versus gold it's actually just a question of the fixed cost at the mint at the original producer so I'd like to give you a practical example using silver to illustrate how the total spread works and why it's important to look at the total spread and not just the original premium that you're paying for product we're going to use two very popular products the one ounce silver may believe and the one ounce silver eagle once produced by the Royal Canadian Mint the other produced by the US Mint so in my example we're gonna use a spot ask price as the basis of eighteen US dollars so we're we're saying that today the price of silver is eighteen US dollars for the purposes of this example if you were to go to a popular online retailer and buy one silver may believe you're likely gonna pay about three dollars over the spot price so your total cost spot plus three being the premium would be twenty one US dollars for the one ounce silver may believe now you're going to go out and purchase a one ounce silver eagle the one ounce silver eagle will probably cost you somewhere around twenty one fifty we'll call it twenty two dollars for the purpose of this example so you've got one coin that cost you twenty one dollars the other coin that cost you twenty two so you're gonna say to yourself well obviously I'm gonna buy the coin for twenty one dollars right it's the cheaper of the two coins that makes perfect sense and you're right if you're only looking at the first half of the transaction not worried about when you sell the coins you've saved yourself a buck but you need to take a look at what the dealer either the same dealer you bought it from or other competing dealers are willing to pay for those two coins when they're sold back so for the purposes of this example we'll say that dealers when buying back one ounce silver maples our pain spot bid even so their pain will call it for the purposes of this example 18 dollars if I sold back that same Maple Leaf right now I'd get 18 dollars back so the total spread is 21 minus 18 three dollars total spread and now when it comes time to looking at the buyback price for a silver eagle you notice that the dealers are actually paying in 1950 so it's a dollar 50 higher on the buyback the difference between the twenty two dollars you paid for the Eagle minus the 1950 you've got a total spread of two dollars and fifty cents so even though there was a higher cost on the way into the transaction you have a better cell back price and your total spread is narrower for the one ounce silver eagle making it the better of the two products in this example to purchase now remember you don't necessarily have to sell your products back to the same dealer that you bought them from so you can literally shop for the best premium on the way in and then the best discount on the way out and quite often you will notice that companies that have the lower premiums to attract buyers don't necessarily have the best buyback prices so there's their spread is still there you're gonna want to look for the company with the best premium and the best buyback and then take advantage of both to again narrow your spread one final thing to consider when you're looking at purchasing precious metals is to avoid as a general rule buying scrap metal so this is metal that is either impure or in some sort of unfinished form because you could potentially buy it at spot even or slightly under spot but what you need to remember is that scrap metal well that's exactly what it is it's gonna have to be refined at some point so when you go to sell it you can expect to get a bit much lower than the spot bid price another thing to keep in mind I know a lot of people like collecting coins graded coins unless you really know the market well graded coins are sold at quite high premiums at times and throughout my career I've seen some dealers take advantage of investors who might not be so savvy and they're charged a very high premium up front for the graded coin but when it comes time to sell that coin they're not getting much of you know that money back they're not seeing the returned that total spread is very very wide and that's something that you you need to educate yourself about before you get integrated coins and the last one I wanted to mention is buying generic or discounted rounds and there can be times when that makes sense you can get a 1 ounce silver round very cheaply above the spot price some dealers will have a blowout sale just in order to clear their their inventory but again you want to look at the total spread because it might seem really really cheap upfront but because it's a generic brand it doesn't have a good reputation globally it might be a little bit harder to sell that product down the road or you're just gonna get less money for it when it comes time to liquidate spot price premiums discount spreads I know it might sound all a little bit overwhelming but I hope you learned something today we gave you all the formulas you'll need to be able to do that simple math and if you have any questions of course you can contact us at info at SW pkmn comm you can follow us on twitter at swp gold or of course just subscribe to our youtube channel for more great educational videos [Music] you [Music]

Channel: Strategic Wealth Preservation - SWP

Views: 344,604

Keywords: precious metals, metal, SWP, Strategic Wealth Preservation, gold, gold bars, gold coins, bullion, bars, silver, silver coins, silver bullion, gold bullion, platinum, invest, investment, vault, cold storage, offshore, Cayman Islands, Grand Cayman, gold stacking, silver stacking, deposit, safe, security, deposit box, segregated, travelling with gold, travelling with silver, storing gold, storing silver, offshore storage, macroeconomics, recession, goldsilver, mike maloney, raoul pal

Id: BwM4WxpzUao

Length: 13min 26sec (806 seconds)

Published: Fri Apr 10 2020