Premiums is why I do not think metals are a good investment. Sure it could be, but the premium alone automatically puts you in a loss.
I wouldn't get too caught up in the "premium" issue. It's widely misunderstood in connection with precious metals ("PM").
First, part of the "premium" paid for government minted coins (as opposed to pure bullion in the form of rounds or ingots) is partly peace of mind in connection with authenticity, exchangeability and that it can be used as a form of payment (including payment of debt and taxes). While obviously not a good investment, a $1 Silver Eagle could be used as a form of payment of debt/taxes to the tune of $1; general bullion cannot. Government minted coins are also more recognizable, and trustworthy, which adds to their intrinsic value, beyond their actual PM content. Which isn't to say that government minted coins cannot be counterfeited, but doing so takes much more time and effort than say, for example, an ingot of unknown provenance. Thus some are willing to pay more for a minted coin vis-a-vis an ingot or round.
Second, there is a general misunderstanding between "spot price" and the price one can actually get their hands on the physical. Understand that the PM markets are
highly influenced by the larger banks, especially within ETF's, and that as a result, especially when it comes to Ag, "spot price" does not always reflect the real-world price of obtaining the physical. In that regard, and setting aside for the moment the issue of the "premium" paid for government minted coins, it is partly incorrect to consider the difference between spot and physical as a "premium," but instead should be looked at, in part, as to how far off, or rather suppressed, the spot market price is in relation to the actual cost of obtaining the physical. For example, I mentioned in a previous post that several years ago I was paying about a $2.50 "premium" for Ag Eagles, but at the same time I was also paying about $1 over spot (about 6.7%) to obtain bullion. Now, in each instance, there's obviously seller fees (read: arbitrage), but the "spot price" and real-world price of obtaining the physical were not that far off. Fast forward to the early stages of the scamdemic, to about the summer of 2020, wherein the spot price of Ag had not risen all that much, but the real world demand of the physical was pushing the cost to about $20 or more per troy ounce. This difference, while called by some a "premium," was really an indication of how far off the paper market was in relation to real-world demand.
So why the difference in the spot price vs. real-world demand for the physical? Well, I'm no expert in this area, but it is my understanding that this again goes back to the larger banks, and more especially the ETF's. While in theory, if you were to buy a share of an ETF, you could bring that share to the bank and exchange that share for its equivalent in the physical. In other words, when a bank issues ETF shares, they are supposed to back every single share up with its equivalent physical. But they don't. And that's why the market, especially the Ag market, has been so manipulated. If there were a run on the physical in connection with ETF's, my guess is that a few major banks would be going under.
Topic: Where to buy precious metals (Read 11181 times)