Understanding the Bullion Premium: What You Need to Know

Bullion premium is a term often used in the world of precious metals investing, but what exactly is it, and why is it important to understand? In simple terms, the bullion premium is the added cost associated with purchasing physical bullion, such as gold, silver or platinum, over the spot market price of the metal. This premium can vary depending on various factors, including the type of bullion, the purity of the metal, collectability, and market conditions.

Investing in physical bullion can provide many benefits, including peace of mind and stability in uncertain economic times. However, it is important to understand the added cost of the bullion premium and how it can impact your investment.

What factors influence the bullion premium?

The bullion premium is influenced by various factors, including:

• Type of bullion: The type of bullion you purchase will affect the premium. For example, gold coins carry a higher premium compared to gold bars of the same weight and purity.
• Purity of the metal: The purity of the metal will also impact the premium. Higher purity metals, such as 24k gold, will typically carry a higher premium compared to lower purity metals.
• Market conditions: The demand for bullion can also impact the premium. In times of high demand, the premium may increase, while in times of low demand, the premium may decrease.

The benefits of investing in physical bullion, regardless of the premium

Despite the added cost of the bullion premium, the benefits of investing in physical bullion far outweigh the costs. One of the biggest benefits is the peace of mind that comes with knowing that your investment is not subject to counterparty risk. Unlike other investment vehicles, such as ETFs or futures contracts, investing in physical bullion does not involve a middleman. This means that you do not have to rely on a third party to hold your investment, reducing the risk of fraud or mismanagement.

Another advantage of investing in physical bullion is the long-term stability of the asset. Precious metals have been valued by civilisations for thousands of years and are widely recognised as a safe haven in times of economic uncertainty. This stability, combined with the fact that physical bullion is a tangible asset, makes it a reliable investment over the long term.

The bullion premium is marginal and insignificant across the lifetime of your investment

It is important to note that the bullion premium is marginal and insignificant over the lifetime of your investment. The premium associated with bullion is not a static cost, but rather a dynamic cost that can fluctuate over time. In times of high demand, the premium may increase, but it may also decrease in times of low demand. This means that over the lifetime of your investment, the premium may even out and become a minor factor in the overall performance of your investment.

Bullion Premium: Bars vs Coins

When it comes to purchasing physical gold bullion, there are various options available in the market. Gold coins, such as the 1oz Perth Mint Kangaroo coins, are a popular choice among investors due to their added security and authenticity. These coins are legal tender and are guaranteed for their weight and purity, making them a reliable investment option. In comparison, 1oz gold cast bars from the same brand may have the same weight and purity, but they lack the legal tender status and added collectable value of coins. Ultimately, the choice between coins and bars will depend on the investor's preference and investment goals, but understanding the differences in the bullion premium, security, and authenticity is crucial for making informed decisions.

While the bullion premium for coins may be higher, they may also be more liquid and easier to sell in smaller quantities. Additionally, coins may have a more stable value due to their collectability, which can help offset the higher premium in the long run.

Absorbing the cost and balancing the overheads with the dollar cost average method

One effective strategy to mitigate the impact of the bullion premium is to use the dollar cost average method. This involves investing a fixed amount of money into bullion on a regular basis, rather than making a large, one-time purchase. By doing so, you can absorb the cost of the premium over time, instead of all at once, which can help balance out the overheads associated with investing in physical bullion. This method can also help reduce market timing risk, as you are investing regularly regardless of market conditions.

For example, let's say you have $10,000 that you want to invest in physical bullion. Instead of making a one-time investment, you could opt to invest $1,000 each month for ten months. This way, you are able to absorb the bullion premium cost gradually and evenly over time.

Another example is if the bullion premium increases, you may be able to purchase less bullion with your fixed amount of money. But, when the bullion premium decreases, you are able to purchase more bullion with your fixed amount of money. This helps to balance out the cost over time and reduce the impact of market fluctuations.

The Importance of Working with a Reputable Bullion Dealer

When it comes to investing in physical bullion, working with a reputable dealer is of utmost importance. At Jaggards, we have been operating for 60 years and have built a reputation for authenticity, trust and integrity in all of our dealings. Our 60 years in the industry is a testament to our commitment to operating in faith and providing value to our customers.

Our team at Jaggards is comprised of experts who have a thorough understanding of the bullion market and can provide you with up-to-date information on the current bullion premium. We offer a wide range of options, including different types of bullion and various purities, so that you can find the product that best meets your investment goals.

 Invest in an asset that performs!

The bullion premium is a crucial aspect of investing in physical bullion that should be thoroughly understood by any potential investor. Despite the added cost, the benefits of investing in physical bullion, such as peace of mind and long-term stability, make it a wise choice for those looking for a secure and reliable investment. By using the dollar cost average method, you can help mitigate the impact of the bullion premium and make investing in physical bullion more manageable and cost-effective.

So, why not take the next step and get in touch with Jaggards today? You can reach us via email at info@jaggards.com.au or call us at 02 9230 0086. Let us help you make your investment in physical bullion a successful and secure one!