This is a question we get over and over, so I thought I’d just answer it. (Notice that premiums of gold and silver over ’spot’ have decreased as of Wednesday!)
The “Spot price” of gold and silver is at the mine, and the “spot price” of milk is at the milking station on the farm. The ’spot’ price of oil is at the wellhead, and the ’spot’ price of anything is at its basic point of origin, before any manufacturing, transportation or distribution takes place. In other words, no one can buy anything at the ’spot price.’ The ’spot price,’ is merely an indication of the market’s position, and not the price of anything physical.
Gold and silver ore at the mine, have to be milled, smelted, and then manufactured and distributed. Coins must have round ’blanks’ made, so that the actual coin can be stamped out of them. Gold and Silver Eagles are made from blanks made other places than the U.S. Mint at West Point, New York. Some are made in Idaho, and some in Australia. After the coins are made, they must be distributed, and that means there is a distributor who distributes them to dealers. The distributor has to pay to have them shipped to him from the mint, so there is transportation involved.
Krugerrands, for decades, had prices pretty close to the spot price, because they were all imported back in the 1970’s and 1980’s, and were merely re-circulated among buyers and sellers. Those are all gone now, and new 2009 Krugerrands must be imported from South Africa, with customs and shipping paid for by the distributer, so the new Krugerrands are more expensive than they used to be when we had the 1970’s and 1980’s dates.
Our distributer, A-Mark, is one of the largest distributors of precious metals in the world, and , maintains well guarded storage at Brinks warehouses in Salt Lake City and Los Angeles. Obviously, Brinks charges for secure storage, shipping and packing. The US government buys gold and silver from A-Mark to make the Gold and Silver Eagles, because of course, they have none. A-Mark must make a profit, the mints must make a profit, and Brinks makes a profit also, and no one can fault them for that or change that. My son David, and daughter Melissa, as well as myself, also must make a profit to live and pay our expenses, so costs at all of these levels of manufacture and distribution are the reason that nothing can be bought at ’spot price.’
Obviously also, things sold at ’spot price,’ such as metals, oil, steel, lumber and the like, must be produced at a profit so they can be sold at the spot price, meaning they probably are produced at below spot price. Think also of the taxes involved. Taxes on the phone lines, packing materials, labor at all levels, property taxes, and income taxes at all levels. Property taxes on the mines, mills, smelters, storage facilities, transport vehicles, distributor offices, Brinks storage, and payroll taxes on all levels. Taxes on fuels, electricity, and taxes on the property of every single component from spark plugs, fan belts, telephones, computers, etc, plus income and Social Security, and Medicare taxes from every single employee even remotely involved in anything made for something sold at ’spot price.’ Then there are the additional costs of making and selling things after manufacturers buy raw materials at ’spot prices.’
It was at one time estimated that a dollar loaf of bread (a long time ago!) had 95 cents worth of taxes on it at every single level of its production, sales, and grain growth. Taxes on fertilizer the farmer uses, the tires on his tractor and home, taxes on the super market, trucks, employees, and it can go on and on. With metals, the gold and silver mines have not only taxed labor, but taxed properties, and taxed fuels, air compressors, drill bits, rails, and every single thing a mine uses, be it bolts, light bulbs, or machinery used by a miner. The mines run “man trips” to get miners back into the mines, and the insurance must be horrendous.
When then, one can buy a hundred ounce bar of silver made by Johnson-Matthey in Salt Lake City for 85 cents over ’spot,’ I think it shows great efficiency along the whole line. And when it can be bought for 60 cents over ’spot’ in lots of 5,000 ounces, it shows even more efficiency, I believe.
Look then, at the spot price to determine whether the markets are up or down, but remember, the spot price does not include lots of property taxes, taxes and costs of shipping, manufacture, distribution, insurance, hundreds of payroll taxes, and lots of telephone lines, computers, tons of machinery, and even risk at all levels. This is why a Gold Eagles sells for $35 over the ’spot price,’ and other items less. Beware of these many TV ads for gold! These guys are absolute crooks, and if you ever call them, you are on their ’list,’ and you can expect to be bothered endlessly from these creeps in their little cubicles trying to make a sale. Who do you think pays for the ads? The suckers who buy from them. We call no one. If someone wants something, they call us. If someone has something to sell, which they will make a large profit on, they will call you, and it’s just that simple. We NEVER bother anyone, and don’t even advertise. My columns and our web site, plus lots of word-of-mouth, and our customers, are responsible for our success, and we thank you!
Don and Bonnie are going to Bonnie’s 50th class reunion in Minnesota. Don will be gone Thursday, Friday, and Monday, so please call Daughter Melissa, or son David for service.