So, you've made the decision that it's time to add gold and/or silver
bullion to your investment portfolio. Now it's time to understand how the
price of your coins and bars is calculated.
Spot Price & Futures Price
There are two benchmarks for precious metals - spot prices and futures
prices. These prices are determined by 'over-the-counter' markets and
'futures exchanges'. We've explained more about both of these here.
Even though they tend to be reported on TV and radio news, spot and
futures prices are unavailable to retail buyers of gold and silver bullion
coins and bars.
Retail price
When setting the price of bullion for retail investors, The Perth Mint
takes into account these international benchmarks. Our calculations
include a 'premium' over the metal price to cover the cost of fabrication of
raw gold into coins and bars. To ensure we have a viable business, the Mint's
premium also includes a profit margin.
There are a couple of general rules worth knowing about premiums.
They are lower on bullion cast bars because the fabrication process is
fairly straightforward. Bullion coins, which offer a number of important
benefits including legal tender status, greater divisibility, rarity and
detailed designs, are more complex to fabricate. As a result, the premium
paid is slightly higher.
Notice, however, that premiums per ounce are usually lower on larger
coins. You'll also be able to discount the premium per ounce by taking
advantage of volume discount breaks.
Live price
Taking their lead from international benchmarks, retail prices of gold and
silver bullion fluctuate during the course of the day. To reflect this, our
advertised prices are constantly updated.
When placing an order for bullion on the Mint's bullion website, you have
one minute to lock-in the 'live' price of gold or silver before it is automatically
revised - either up, down or no change.
When ordering by telephone, a customer service officer will confirm the
price before completing a purchase on your behalf.
Local currency
The price of gold and silver bullion is also directly affected by the
relationship between the U.S. and Australian dollars.
This is because precious metals are U.S. dollar denominated commodities.
But for the convenience of local customers, The Perth Mint prices its bullion
in Australian dollars.
So if the Australian dollar strengthens relative to the U.S. dollar, the
local price of bullion will fall. Conversely, if the value of the Australian
dollar weakens relative to the U.S. dollar, the local price of bullion will
rise.
The Australian dollar last hit parity with the U.S. dollar
in 2013, negating this effect. More recently, the Aussie's value has declined
somewhat, explaining why the price of gold in Australian dollars has remained
strong.
