Fractional Gold Premiums Aren’t Too High

Many times the comment will be made that the premium on fractional gold, especially 1/10oz rounds and coins, is simply too high. Those same people then argue to instead focus solely on silver, because the premiums are lower. The problem with this is while the cost certainly is lower, the actual premiums can sometomes be lower on the 1/10oz fractional gold, or close enough that the price difference is negligible.

The Math

The easiest way to do this is with the following formula:

((price of coin / oz of metal in coin) - spot price ) / spot price

This will give you the premium percentage over spot price.

For this example, let's use simple math. Spot has long since exceeded these prices, but the point is the same. Let's say gold spot price is $1700 and silver spot price is $19. If you take a $198 gold 1/10oz coin or round and compare it to a 1oz silver round at $4 over spot, you'll see that the gold coin/round has a premium of 16.47%, while the 1oz silver round has a premium of 21.05%. As you can see, in this specific scenario, while the gold coin is more expensive as a whole, you're paying a higher markup if you buy the 1oz silver round. Now, if you are looking at a silver round that's only $2 over spot, then it's only a 10.52% premium and the silver is a better buy from a premium standpoint.

Exceptions

While this is true in the case of 1oz silver rounds, there are exceptions. You will typically find premiums to be slightly lower than the gold 1/10oz round or coin when you start buying 10oz or larger silver bars.

Premium Retention

One area of concern is how likely it is that you'll recoup the premium you originally paid for the item. While you will not recoup it selling to a LCS (You won't recoup most premiums selling to them), you will get most or all of it back selling it privately. Don't let recouping your premium stop you from buying fractional gold. Smaller denomination gold gives you more flexibility with your bullion, so if you need to sell some of it you don't have to sell a large portion at once.

For everything in bullion and precious metals, there is an advantage and a trade off. It's up to you to decide what combination of rounds, coins, bars and metals will help you accomplish your goals. Fractional gold is still worth considering having in your overall strategy.