Premium (Agio)
Also: Agio, Premium, Coin surcharge, Dealer surcharge
The premium (agio) is the amount by which the selling price of a precious metal coin or bar exceeds the current metal value (spot price).
Anyone buying a gold coin or a silver bar almost always pays more than the pure metal value. The difference between the dealer's selling price and the current spot price is called the premium – in financial jargon also agio. The premium is not a hidden fee; it compensates for genuine costs in the physical precious metals chain: minting, logistics, insurance, dealer margin, and – for silver and platinum – VAT.
Formula and Calculation
The premium can be expressed in absolute terms (in currency) or relative terms (as a percentage):
Premium (£) = Selling price − (Spot price × Fine weight in oz)
Premium (%) = (Selling price / (Spot price × Fine weight) − 1) × 100
Example: The gold price stands at £2,800/oz. A Krugerrand (916 gold, fine weight 1 oz, gross weight approx. 1.09 oz due to the copper content) costs £2,900 in the trade.
Premium (£) = 2,900 − 2,800 = £100
Premium (%) = (2,900 / 2,800 − 1) × 100 ≈ 3.57%
Using the buyback price calculator you can see the mirror image – how much a dealer deducts when repurchasing – the difference between the buying and selling premium is the spread.
Factors Influencing the Premium Level
The premium is not fixed; it depends on several variables:
| Factor | Effect on Premium |
|---|---|
| Denomination | Smaller units (1 g, 1/10 oz) = higher relative premium |
| Product type | Bars < bullion coins < collector coins (Proof) |
| Market conditions | High demand / supply shortages drive premiums up |
| VAT | Silver, platinum, palladium: +20% VAT (UK) or margin scheme |
| Origin | EU mintings often cheaper (no customs/import duty) |
| Dealer structure | Online direct dealers vs. coin dealers/banks |
Denomination Effect – Gold Bars Table
| Weight | Typical Premium (%) |
|---|---|
| 1 g | 8–15% |
| 5 g | 4–8% |
| 10 g | 3–5% |
| 1 oz (~31.1 g) | 2–4% |
| 100 g | 1.5–3% |
| 1 kg | 0.8–2% |
The reason is straightforward: fixed costs for packaging, certificate, and insurance are incurred regardless of weight and are spread over a smaller amount of metal.
Premium on Silver – the Tax Effect
Silver is subject to VAT in most countries. This accounts for a significant portion of the nominal premium that investors pay. Dealers within the EU may in some circumstances apply the margin scheme, under which only the trade margin is taxed – reducing the surcharge accordingly. When comparing silver offers it is always worth checking whether the displayed price includes VAT. Note: Tax implications depend on individual circumstances – this is not tax advice.
Premium and Resale
When selling, the dealer generally does not pay back the premium – they buy close to or slightly below the spot price. This means: anyone who buys physical precious metal in the short term and sells it again must first "earn back" the premium before entering profit territory. With gold bars with a low premium (< 2%), the breakeven threshold is low; with collector coins carrying a high premium, it can be very high.
For long-term investors, the premium plays a subordinate role, because as a percentage it shrinks as the metal price rises. However, investors in silver or platinum should note that the VAT paid is not refunded on private dealer sales.
Premium Comparison: Bullion Coins at a Glance
| Coin | Metal | Typical Buy Premium (1 oz) |
|---|---|---|
| Krugerrand | Gold | 2–4% |
| Vienna Philharmonic | Gold | 2–4% |
| Maple Leaf | Gold | 2.5–5% |
| American Eagle | Gold | 3–6% |
| Vienna Philharmonic | Silver | 15–25% (incl. VAT) |
| Maple Leaf | Silver | 16–28% (incl. VAT) |
With the melt value calculator you can determine the pure metal value of a product – the difference from the purchase price is the absolute premium.
Premium as a Market Indicator
During crises, premiums frequently spike: when demand for physical gold and silver exceeds available supply (delivery bottlenecks at mints or refineries), the premium on bullion coins can temporarily rise to double or triple its normal level. The premium is therefore an indirect sentiment indicator for demand for physical metal – independent of the spot market price, which is formed via futures and the LBMA fixing process.
In Brief
The premium (agio) is the unavoidable surcharge on the spot price that buyers of physical precious metals pay for minting, logistics, and dealer margin. It pays to actively compare premiums, choose cost-efficient denominations, and factor in the tax component for silver – because the lower the premium at purchase, the sooner you are ahead at resale.