Bullion premiums and spreads: where the money goes
Nobody buys a bar at the spot price, and nobody sells one at the spot price either. Between the market price of the metal and what you actually pay or receive sit two costs: the premium when you buy and the spread across a full round trip. Together, they determine how far the metal price has to move before a holding breaks even. Understanding them is the most practical skill a bullion buyer can have.
Three prices, not one
| Price | What it is |
|---|---|
| Spot | The current wholesale price of one ounce of metal in large quantities. See gold bullion prices for how it is formed. |
| Ask (selling price) | What a dealer charges you for a specific product: spot plus a premium. |
| Bid (buy-back price) | What a dealer pays you for the same product: usually spot plus or minus a small amount. |
The premium is the gap between ask and spot. The spread is the gap between ask and bid: what you would lose if you bought and immediately sold the same bar to the same dealer.
What the premium pays for
The premium is not pure profit. It covers a chain of real costs:
- Refining and fabrication. Turning raw metal into a finished bar, especially a minted bar with a design, packaging and assay card.
- Brand. Bars from well-known refiners often cost slightly more because they are easier to resell.
- Distribution. Wholesale margins, transport and insurance between refiner and retailer.
- The dealer’s costs and margin. Staff, premises, payment fees, compliance checks and profit.
- Taxes, where they apply. In the European Union, investment gold is generally exempt from VAT, while silver bars usually are not, which is why silver’s all-in premium can look much higher.
Why size matters so much
Fabrication and handling costs are largely fixed per piece. Spread over a larger weight, they shrink as a percentage. That is why premiums fall steadily as bars get heavier.
- A 1 g or 1 oz gold bar carries a noticeably higher premium per gram than a 100 g or 1 kg bar.
- For silver, the same logic runs from 1 oz bars to 100 oz bars, and the effect is stronger because silver is cheaper per ounce.
The trade-off is flexibility: small units are easier to sell in part. The gold bars guide discusses which sizes actually trade.
Why premiums change over time
Premiums are not fixed. They tend to rise when demand for physical metal surges faster than refiners can produce small bars and coins, typically during periods of financial stress. In those moments, the spot price and the price of a finished product can move apart, and retail stock can run short. When demand calms, premiums usually fall back.
This is worth remembering when comparing a dealer’s prices over time: a higher premium today does not necessarily mean the dealer has become more expensive.
How the spread works against you
Suppose a bar is sold at a premium over spot and bought back at, or slightly below, spot. The difference between the two is lost on a round trip, before any change in the metal price. Add shipping and insurance at both ends and, where relevant, tax that cannot be recovered, and the break-even point moves further away.
That is why bullion is generally seen as a long-term holding rather than something to trade frequently. Every round trip pays the spread again.
How to compare offers properly
- Compare per gram or per ounce of fine metal, not per piece. A cheaper-looking bar can be dearer per gram.
- Compare the all-in price: product, shipping, insurance, payment fees and tax.
- Look at the bid as well as the ask. A dealer that sells cheaply but buys back poorly may cost more over a full cycle. Our guide to gold bullion buyers explains how buy-back prices are set.
- Check the brand’s resale standing. A little more for a widely recognized refiner can come back at resale.
- Note the time of the quote. Prices move with spot throughout the trading day; many dealers lock a price only at the moment of the order.
A quick checklist
- What is the spot price right now?
- What is the premium on this product, in percentage terms?
- What would the same dealer pay me for it today?
- What are the delivery, insurance and payment costs?
- Is there tax on this product where I live?
Answering those five questions before every purchase turns a confusing set of prices into a simple comparison. It will not tell you whether the metal price will rise, which nobody can know, but it will tell you exactly what you are paying for the privilege of holding a bar.
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