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Why are the Premiums on Sovereign Bullion Higher than on Generic Bullion?

Why are the Premiums on Sovereign Bullion Higher than on Generic Bullion?

Jun 30th 2019

Coin collectors and precious metals investors often ask the question: “Why would I pay more for an American Silver Eagle if it contains the same precious metal content as a 1 oz silver round?” This is a great question, and it can be answered with a variety of answers. However, it is important to understand why one pays a premium for 1 oz silver coins like the American Silver Eagle, Canadian Silver Maple Leaf, South African Silver Krugerrand and many more sovereign silver coins. The premiums for these pieces can be in excess of $2 per ounce for silver when compared to a generic 1 oz silver round. The premiums for sovereign gold bullion can be in excess of $50 per ounce. Let’s dive into why.

The first reason that sovereign silver and gold coins trade for a premium is the integrity of the mint that made the coin. The United States Mint, Royal Canadian Mint and other world mints have very strict minting standards and are respected world wide. Their products are inspected for imperfections and defects much more closely than generic bullion items are. So in a sense, you know what you are getting when you purchase bullion products that they mint. In simpler terms, you are paying for the peace of mind that your gold or silver bullion purchase is exactly what it is advertised to be. This can be compared to purchasing a name brand medicine or a generic brand. You are getting “the same thing” but many will pay a premium for the name brand.

Another reason behind the premiums these silver and gold items have is that the are denominated, whereas a typical privately minted bullion round or bar is not. This means that the coin is actually legal tender in the country that is was minted. For example, the American Silver Eagle has a $1 denomination, the Canadian Silver Maple Leaf a $2CAD denomination and the 1 oz Gold Philharmonic a denomination of 100 Euros. The fact that they are legal tender further adds to the value of the bullion.

A third reason that one would pay a premium for sovereign bullion coin is that they may become collectible. This is not always the case, but if you bought Silver Eagles in the 1980s, 1990s and early 2000s, you now have a coin that is worth far more than the original price paid. The premiums on these items can be double or even triple the price of the melt value.

Lastly, the premium you pay for government minted silver and gold holds true even when you decide to sell you precious metals. For example, when you go to sell your Silver Eagles, you will receive a higher premium over the spot price of silver than you would if you were to sell 1 oz silver rounds. In short, the resale market for government minted bullion coins like the American Eagles, Austrian Philharmonics, South African Krugerrands and Canadian Maple Leafs is much stronger than it is for privately minted bullion like 1 oz silver rounds and 10 oz gold bars.

It is also important to note that products minted by top tier private mints like PAMP Suisse, Engelhard and Johnson Matthey also trade for a premium over less known mints. One can use the analogy of buying name brand cereal as opposed to the store brand as to why one would pay a slight premium for the products of these brands.

In conclusion, this article is not to say that you should stay away from privately minted precious metals or that they are of bad quality. The purpose of this article is to explain why one would pay a premium for government minted bullion. There are plenty of private mints that produce top-notch bullion products are well-respected worldwide. For example, PAMP Suisse in Geneva, Switzerland is known to produce some of the best silver and gold bullion products on the market today. Stay tuned for more articles about the gold and silver bullion market.

*These are solely the opinions of Bullion Shark, LLC and are not intended to be used as investment advice. Please consult an investment adviser before investing.