Premium
Also: Mark-up, Agio, Premium
The premium is the mark-up over the spot price that buyers pay in addition to the pure metal value when acquiring physical precious metal products such as coins or bars.
Anyone buying physical precious metal never pays exactly the spot price quoted on the exchange. Between this theoretical reference value and the actual purchase price there is always a premium – also called mark-up or agio. It compensates for manufacturing, storage and distribution costs and at the same time reflects supply and demand for the particular physical product.
Composition of the premium
The premium typically consists of several components:
- Minting or casting costs – mints and refineries charge for manufacturing effort per piece.
- Dealer margin (spread) – the difference between the dealer's buying and selling price.
- Logistics and insurance – transport, storage and insurance of physical holdings.
- Taxes – in the United Kingdom, silver, platinum and palladium are subject to the full 20% VAT, which raises the premium significantly (→ silver surcharge due to tax).
- Market demand – in times of crisis, premiums sometimes rise sharply because physical availability lags behind the spot quotation.
Premium comparison by product type
| Product | Weight | Typical premium* |
|---|---|---|
| Gold bar (cast) | 1 kg | 0.5 – 1.0% |
| Gold bar (minted, blister) | 100 g | 1.0 – 2.5% |
| Gold coin (standard bullion) | 1 oz | 2 – 6% |
| Gold coin (special edition/proof) | 1 oz | 10 – 40% |
| Silver bar | 1 kg | 5 – 12% |
| Silver coin (standard bullion) | 1 oz | 10 – 30% |
*Guide values without guarantee, depending on dealer, quantity and market conditions. Not investment advice.
Formula: calculating the premium
Premium (%) = (purchase price – spot price × fine weight) / (spot price × fine weight) × 100
An example: a 1-oz gold coin costs £2,100, the gold spot price is £2,000/oz. The premium is (2,100 – 2,000) / 2,000 × 100 = 5%.
With the melt value calculator you can determine the pure metal value of a product; the difference to the purchase price corresponds to the absolute premium in pounds.
Why the premium matters when buying and selling
Premiums are paid when buying, but on selling (buy-back by a dealer) they are mostly not reimbursed in full. The buying price is usually close to the spot price, rarely far above it. This means:
- Anyone who buys a coin with a 5% premium and sells it back at spot price shortly afterwards immediately realises a loss equal to that premium.
- The longer the holding period, the smaller the relative influence of the premium on the overall return.
- Larger denominations (kilo bars, 500 g bars) have lower premiums than small coins – anyone seeking a pure store of value therefore often chooses large bars.
Premium on the silver market
Silver structurally shows higher premiums than gold. Besides VAT, the manufacturing costs per troy ounce are much larger for silver relative to the metal value (the metal is cheaper, the manufacturing effort similar). Especially for small silver coins, the premium can substantially exceed the spot share.
In brief
The premium is the unavoidable cost buffer between the spot price and the physical product. Anyone who knows and compares it – by product type, denomination and dealer – makes better-informed purchasing decisions and avoids unnecessarily high mark-ups. This article contains no investment or tax advice.