Fixed Bullion Coin Costs: minting, marketing, shipping (Bullion Costs)

Discussion in 'Bullion Investing' started by myownprivy, Nov 28, 2018.

  1. myownprivy

    myownprivy Well-Known Member

    If the manufacture, marketing, and shipment of a coin is at least $2 per coin, then that is a built in premium we will always have to pay. So, let's consider the impact that has a piece of bullion. For this example will eliminate all of the other premiums that dealers attach to bullion that makes them their money (Dealer Markups).

    November 28, 2018

    If 1 ounce of gold is $1225, and 1/10 oz of gold is $122.5, and 1 ounce of silver is $14.41, what percentage does $2 premium on each coin represent?

    If one ounce of gold is $1225 at spot plus $2 cost, you should expect to pay $1227, a 0.7% premium.

    If the 1/10 oz of gold is sold at spot plus $2 cost, you should expect $124.5, 1.6% premium

    If 1 ounce of silver at spot is $14.41 plus $2 cost, you should expect to pay $16.41, a whopping 12.2% premium!

    Here are a few things we can learn from these calculations:

    1. Bullion costs money to manufacture. These costs can never go away. Mints and private bullion sellers must always charge a premium of some kind to make back the money it costs to mint, ship, and market their product.
    2. Knowing this, the greater bullion value a single coin has, the less of an impact the manufacture cost will have on the price of that bullion. Consequently, because gold is worth so much more than silver, buying gold bullion will always be a better deal than buying silver bullion.
    3. However, when the price of silver rises, the premium you pay should fall. If the cost of manufacture is fixed, it will represent a lower percentage of the price of a coin if the metal inside that coin is worth more. For instance, if silver rises to $18 an ounce and is sold at spot plus cost for $20, you are now paying a 10% premium. If silver rises to $48 and 1 oz bullion then sells for $50, you are paying only a 4% premium. But when silver is cheap, as in 2018, you should expect to pay a much larger percentage premium.

    Knowing that, how does this impact your bullion buying?
    Some people may use this information to not buy silver unless silver is high. Some people may use this information to buy silver only in large quantity, such as kilo bars. Some may use this information to buy only gold. What do you do?
     
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  3. -jeffB

    -jeffB Greshams LEO Supporter

    I let others eat the entire premium on newly-manufactured items, and buy mostly old stuff that's trading close to melt. (To be honest, I rarely buy unless I can get it below melt.)
     
    harrync likes this.
  4. baseball21

    baseball21 Well-Known Member

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  5. longnine009

    longnine009 Most Exalted Excellency

    As usual: silver bad, gold good.

    Indeed, this does "impact" me greatly. I think I'll go buy the dow instead. I'm sure the sales person who has a Jag payment due next week will have my best interest at heart.
     
    Last edited: Nov 29, 2018
  6. -jeffB

    -jeffB Greshams LEO Supporter

    So, buy from sales person bad, buy from Web site good? ;)
     
  7. longnine009

    longnine009 Most Exalted Excellency

    Whatever you're boring philosophy wants it to be, winky, winky.
     
    Last edited: Nov 29, 2018
  8. Clawcoins

    Clawcoins Well-Known Member

    So is the question how "spot price" is determined as it's not supported by (a) a fixed % manufacturing profit and (b) a fixed mining/refinement cost ?

    If we water it down some more we could think that
    (a) silver and gold are mined in similar ways, thus the fixed cost of mining should be the same, thus
    (b) gold is woefully over priced and should be the same price as iron or any other mined metal.

    that's if I understand the above argument correctly ???
    lol
     
  9. myownprivy

    myownprivy Well-Known Member

    Except it's not. Gold is typically mined itself. Silver is often a byproduct of another type of mining. Thus, the fixed cost of mining should be higher for gold. But someone who knows more about that area should chime in.

    My original post is that the cost to mint a coin is pretty much a standard cost regardless of whether it's gold or silver or a full ounce or fractional. That cost, of around $2 to make the coin, represents a higher percentage of the price of silver ($14.40 an ounce vs gold $1225 per ounce).

     
    Last edited: Nov 29, 2018
  10. GoldBug999

    GoldBug999 Active Member

    The "spot" price for precious metals is based upon supply and demand, like every other commodity. The premiums being discussed are charged on top of the spot price. The cost of manufacturing/mining will vary greatly based upon where the mine is, the percent of precious metals in the ground, how it is being mined, reclamation costs, etc. The profit/(loss) earned by miners will vary based upon the current spot price vs. all their mining costs - it is not a fixed profit by any means.
     
  11. myownprivy

    myownprivy Well-Known Member

    I think we all understand that spot price is based on supply and demand.
    Mining costs are separate.
    Mintage costs are also separate.

    Depending on spot price, that will impact whether a metal is worth mining. How much a metal is mined (supply) will come back to impact spot price, and vice versa.

    However, very little will impact fixed costs of minting, shipping, and basic advertising from Government mints. Those are indeed fixed costs.
     
  12. CasualAg$

    CasualAg$ Corvid Minions Collecting

    Silver, junk silver, or gold are all the appropriate solution to different problems in my view. Gold is a hedge against inflation. Silver seems useful for mild or short-term interruptions in infrastructure. Junk silver for longer problems. So I see a need for each as part of being a good Boy Scout. Like everyone else, I try to find the best price for whichever I’m buying.
     
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