Wednesday, December 05, 2007

An Ounce of Gold

When you search around looking to buy gold, you might wonder, why there can be a different price for the same coin or gold bullion from one dealer to the next.

Firstly the spot price of gold is the value of gold per ounce at any given time. This is generally fixed by the market and you can see the current spot price of gold in the charts show at the top of this page.

Yet there is not only a variation in the price of gold from one dealer to another but the price always seems to be somewhat above the spot price. How can this be?

Lets say, for example, that the spot price for gold today is $787.50 per ounce. Various dealers will give you a selling price of around $830.80 for a one-ounce American Gold Eagle, $819.00 for the one-ounce South African Gold Krugerrand or even $826.90 for a one-ounce Canadian Gold Maple Leaf.

Since each contains exactly one ounce of fine gold, why should there be such a variation?

Well there are other factors to take into account when a dealer sells gold coins regardless of what they are.

Dealers will traditionally mark up what is called the "coin premium." If a dealer bought and sold gold coins at spot price there would be no covering the cost of the manufacture, the shipping the insurance, not to mention the dealers expenses and profit margin. All these need to be taken into account also. And they can vary too!

The mint will have marked up an additional price to the price of the spot gold to cover their costs and profit and this will be further increased by dealers as they acquire the coins and then resell them on. This is, in reality, no different to any other industry from food to car parts etc. Each person or company in the chain has to cover their costs and a profit margin.

Happily for us, the margins can be different between dealers depending on their costs, how much they acquired the coins for originally, as well as other factors such as the available supply of the coins, the rarity as well as market interest in particular types of coins. All this makes it well worth while shopping around.

So when you are scouting around to buy gold coins, do remember to do a little browsing before shopping, you never know what bargains you might pick up buying gold!

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