We are watching an extraordinary performance of gold in USD and EUR since 5 months, of 3 months respectively. Gold its on its way to test the 1.300 USD and the 1.200 EUR benchmarks.

The global gold spot price in USD is hiking since 17 August 2018, from 1.172,92 USD/oz to currently 1.275,23 USD/oz today (27 December 2018).

The global gold spot price in USD gained 102,31 USD in 132 days, or 8,72%, resulting in a theoretical annual gain of 24,11%.

Gold denominated in Euro performed even better. The global gold spot price in EUR is increasing since 28 September 2018, from 1.016,151 EUR/oz to currently 1.115,984 EUR/oz today (27 December 2018).

The global gold spot price in EUR gained 99,833 in 90 days, or 8,825%, resulting in a theoretical annual gain of 36,79%.

The sharpest increases could be seen during this December, as the below charts show.

Gold/USD seems to test the 1.300 benchmark, while Gold/EUR tests the 1.200 benchmark, which it already surpassed during the trading hours yesterday and today.

What would happened if I invested in gold x days/months/years ago?

While gold based on USD has had its little flaws in between, it well preserved value in general and thus protected wealth.

Gold based on EUR gained during all terms listed above, except today. While gold in USD just preserved its value in the 5-years term, with a gain of 5,43% (annually 1,09%), gold in EUR gained 28,35% (annually 5,67%).

Thus, gold based on USD and especially gold based on EUR well served the expectations of HNWIs and UHNWIs, who aim to protect their assets from inflation, political decisions and similar risks.

Important warning: Prices of the past do not necessarily repeat in future. Technical analyses may not be correct or even fail under unexpected influential developments in global and national politics, crises, economic developments, natural occurrences etc.

Do only consider investing funds that you do not need for your current life style or to cover your liabilities!

What is the “gold premium” added to the gold spot price?

New gold investors are often wondering about the premium added to the gold spot price. Here you find detailed information about the top-up gold premiums and by what factors they are influenced.

The global gold spot market, like many other markets, is always open, except during the weekends. When the European markets start in the morning, the Asian markets are almost closing, and when the European markets come to an end in the afternoon, the US market opens, and so on. The market price of gold, as of any other commodity or goods, is mainly determined by supply and demand. These markets are called gold spot markets.

As global supply and demand continues 24 hours, except weekends, the gold price changes continuously, depending on the supply and demand of each geographical market.

The supply mainly consists of sales of gold owners such as investors, funds, central banks, insurance companies, private investors etc. Gold supply from production of refineries and scrap smelters plays a relatively small role. The production figures of mines, refineries and scrap smelters are rather a source of speculation than having a determining influence on the market.

The global spot market price of gold can be found online and live, provided by many sources. You will also find the global spot market price of gold on our website.

It is very important to understand what the global spot market price of gold stands for. The gold spot market is the market of the material of gold, without being in any specific physical form such as bars of various sizes or coins. The global gold spot market price is mainly used as a price basis for contracts such as gold future contracts or gold option contracts etc., where physical delivery is not the primary goal.

When a buyer wants to buy physical gold, taking delivery, then a so-called bullion premium is added to the gold spot market price. The bullion premium is simply called “premium” in the industry, or sometimes “mark-up” or “top-up”. The word bullion premium is a bit misleading, because it does not only apply to bullions (bars), but to coins as well.

When gold shall be delivered, it obviously needs to be in a physical form, mainly in form of bars but also coins. The production of bars or coins comes at a cost, and other costs like for transports, insurance, handling etc. must be covered as well. And then there is a profit margin of the seller that shall be covered.

All the above cost factors are covered by the premium, that a buyer of physical gold needs to pay to the seller, on top of the global gold spot market price.

Professional investors or buyers who buy gold, or silver, frequently, are often not talking about the gold price, which is determined by the global gold spot market anyway and does not leave any room for bargaining the price of fine gold. Instead, professional gold investors and gold buyers talk about the gold premium of a seller.

Gold spot price + Gold Premium = Gold Sales Price

The global gold spot market price is not the sales price of gold when a buyer buys gold. The sales price is always the global gold spot market price plus the premium.

There are certain rule-of-thumb standards for the premiums of bars of specific weights and for coins of specific provenience. Those premium standards may vary, depending on a number of factors, such as:

• The form and weight offered, such as bars or coins, and the different weights of bars;
• The volume of gold offered or requested;
• The current market supply and demand situation;
• Global and local economic conditions;
• The national market (country) where gold is bought, and
• The sellers’ own objectives.

Gold premiums – the influence of form and weight

Obviously, it costs a mint much more to produce 1.000 gold bars of one gram each than one gold bar of one kilogram. The same goes for the packing, transport and internal handling, banking fees etc.

For example, two or three employees going to the vault, transferring gold from own stocks to customer stocks, storing these customer stocks in boxes, sealing them, taking note of bar and seal numbers and entering them later into the stock software creates the same costs for ten bars of one kg each as for ten bars of 100 g each. But ten bars of one kg and ten bars of 100 g have a different value. Reflecting these costs to the price results in relatively lower premiums for larger bars and higher premiums for smaller bars or coins.

Although gold premiums may vary based on the factors listed above and explained below, there are some standards of gold premiums for general orientation:

Gold bars of 1 kg:                            1,5 – 2,5%

Gold bars of 500 g:                         2,5%                   (rarely demanded)

Gold bars of 250, around :            3%                      (rarely demanded)

Gold bars of 100 g:                          3 – 5%

Gold bars of 50 g, around:             5%                      (rarely demanded)

Gold bars of 31,1 g (1 ounce):        6%                      (rarely demanded)

Various gold coins (1 ounce):        5 – 8%

These general rule-of-thumb standards may vary as per the quantity offered or demanded, as per the country where gold is bought, and other reasons mentioned above.

Gold premiums – the influence volume of gold offered or requested

The establishment of a gold seller has to cover certain fixed costs such as overhead costs and payment costs, as mentioned above. If those fixed costs can be spread to a larger amount, the seller can be more flexible with his premiums, still covering costs and realising profit.

The seller’s cost to sell and handle gold bars worth EUR 1,5 million are not six times of the costs selling gold bars worth EUR 250.000. Therefore, the premium for a sale of gold bars worth EUR 1,5 million is likely to be lower than for a sale of gold bars worth EUR 250.000.

Gold premiums – the influence market supply and demand

As with all goods, an over supply on the market drops the prices, and a shortage in supply, because of strong demand, increases the prices. When demand is low, compared with supplies, gold sellers may decrease their premiums in order to attract more buyers.

When demand is high, gold sellers may increase their premiums not only for the reason of increased appetite of buyers, but also to reduce their sales, safeguarding their own stocks in order to be able to meet many buyers’ requests, rather than being sold out within a short period and then watching their own empty vaults, waiting until new deliveries arrive.

While writing this article (December 2018), the delivery time of Swiss refineries is up to 6 to 8 weeks, due to the high demand in physical gold. In times of normal demand or low demand, the delivery time of Swiss refineries is typically 2 days to 1 week.

Gold markets, and silver markets as well, are generally calmer during the summer months, leading to a tendency of slightly lower premiums. When market activities pick up again, typically with the begin of the Indian wedding season in September, the increased volatility results in more buying and selling on the market, which is likely to increase premiums as well.

Gold premiums – the influence global and local economic conditions

Global and local (national) economic conditions are not only influencing the price of gold but, naturally, the premiums as well. The influence on the premium does not necessarily need to be in the same direction as the influence on gold prices. There might be a big demand for gold, which may increase the gold prices. But gold prices may reach or pass acceptance levels in a specific country, leading to difficulties for gold sellers in that country to sell. Consequently, the sellers in that country may drop their premiums.

In countries with a high inflation, like Turkey now, an increasing crowd is trusting gold more than fiat savings (money savings), to preserve their wealth, even if gold demand on a global level stagnates.

Global financial crises like the one caused by Lehman Brothers in 2008, demand in gold and silver increases tremendously, which is reflected to increased premiums as well.

Gold premiums – the influence of a sellers’ own objectives

An individual seller’s own objectives may have an influence on the gold premium, as mentioned above. A concern not to run out of inventory may lead to an increase of a seller’s gold premium. Excessive gold stocks may lead to a lower gold premium of a specific seller.

A seller entering a new market may offer discounted gold premiums to attract more potential buyers. The same typically applies when a seller wants to increase its market share, or to beat strategies of competitors.

Please note that the above information regarding gold premiums applies also to the premiums added to the global spot market prices of silver, platinum and palladium, with the exception that the standard rates are different.

The purchasing power of physical gold and silver – hedging inflation and economic risks

Physical gold and silver are one of the most preferred ways to protect wealth on the long term. As physical gold and silver are outperforming any currency on the long run, they are one of the best solutions to safely transfer wealth to the next generation. Read why…

A few striking examples how physical gold and silver keep value over currencies and other forms of investment:

• Based on USD prices, during the period 1974 to 2014, the cumulative return of physical gold was 3 times of the cumulative return of the S&P 500 Index.
• In the USA, 0,72 oz of silver was buying one gallon of gasoline in 1910, and in 2014 as well. However, the price for one gallon of gasoline in the USA was USD 0,10 in 1910, but USD 3,61 in 2014, an increase of 3.600%.
  In other words, although the gasoline price increased by 3.600% during 1910 and 2014, the quantity of silver needed to buy one gallon of gasoline is still the same.
• From 1900 until 2017, gold outperformed all major currencies, as seen on below chart.

Gold outperformed all major currencies since 1900:

Source: Reuters, Bloomberg

Gold – a century of outperforming currencies

Investment in physical gold is often intended to compensate inflation losses of currencies. The above chart proves the effectiveness of this strategy. Over the last 100 years, gold has heavily outperformed currencies. Global gold production increases 2% annual in average. However, there is no limit to printing banknotes.

Reasons that suggest a substantial rise of gold prices in 2018

Gold analyst Dan Popescu said in April 2018:

“… Gold has recently broken from a technical consolidation formation within a secular bull market started in 2000 ($250) with a potential technical target of $1,450 by the end of the year. Uncertainty in geopolitics with risk of military conflict is gold’s best friend. We had currency wars since 2008, trade wars since 2018 and it looks like military wars are not far. These are ideal conditions for a quantum leap for gold that can push it even above $2,000. Fed’s past chairman Bernanke recently called the present international monetary system “incoherent” and the governor of the Bank of England Carney in 2011 considered the system at a “Minsky moment”. It is I say in unstable equilibrium and ready to collapse and bullish gold.”

More in detail, reasons that suggest a raise of the gold price this year and in future:

• Gold for risk diversification: Gold outperformed the S&P 500 Index since decades. Therefore, owning physical gold is a relatively comfortable way to reduce the general risk of investments by ways of diversification. Investors will continue to diversify their investments by buying gold for their investment portfolio during the next 10 years.
• Growing global gold demand: Gold prices are formed by supply and demand. Growing demand in gold from emerging-market economies does not seem to slow down. Right now, beginning of July 2018, the gold and silver mints in Switzerland and neighbouring countries are not able to offer prompt delivery. When ordering gold from a mint in Switzerland, delivery is around mid of August 2018, and delivery of silver in about three months.
• Need for safety: Gold is perceived as a safe haven in times of crises and economic turmoil. Cautions investors’ choice during such times is physical gold, preferably stored outside of the banking system. Well known large investors, including Carl Icahn and George Soros, are predicting a substantial stock market crash in the near future. If their opinion comes true, many small and large investors will run on physical gold.
• Rising global debt levels: Debt levels of many countries continue to grow rapidly, it seems to be easier to print money then to keep national budgets within limits. When national banknote printing presses continue rotating and when national indebtedness increases, investors get concerned and invest in gold. It is not likely that the problem of increasing indebtedness will be addressed with success during the coming years.
• S. Dollar may be at its peak:Although the US Dollar has slightly decreased recently, it still remains near its highest level since 2003. Political and economic developments may not further support the US Dollar, which would lead to a decrease from its highly supported current level. This will probably increase the demand in gold, as it happened in the past.
• Hedging inflation: During the past, gold prices generally increased with increasing cost of living. This tendency makes gold a good hedge against inflation.
• Negative Interest Rates: Decreasing and/or negative interest rates have always been triggering increase of the gold price, as it becomes extremely difficult to generate any significant gains from currencies or bond yields.
• Wealth protection since centuries: Particularly physical gold, as well as silver, stored outside the banking system, has been perceived as an intrinsic value. This view has recently seen substantial support by a number of central banks, which either withdrew their physical gold from storage facilities in other countries or heavily increased their physical gold stocks by way of purchasing.
  The global crises in 2008 opened the eyes of many people. Not only investors had to watch how irresponsible market behaviour can lead to almost catastrophic results around the globe. The current behaviour of the big players on the money and mortgage markets does not create real trust that a major systemic crisis will not repeat.
• Gold is liquid and portable: Physical gold with the purity of 999,9 is treated on the markets equal to cash money. Therefore, it is absolutely liquid and can be sold easily.
  Physical gold is portable, especially if stored outside the banking system.

Important warning: The above evaluations are the opinion of the authors, which may not materialise in future. The authors do not hold any position in any precious metals at the time of writing this article.

Prices of the past do not necessarily repeat in future. Technical analyses may not be correct or even fail under unexpected influential developments in global and national politics, crises, economic developments, natural occurrences etc.

Do only consider investing funds that you do not need for your current life style or to cover your liabilities!

If you are interested to buy gold for investment or to store your gold with us, please contact us through the form below. 
Thank you!