Why Gold & Silver Spot Prices Differ and Which One You Should Use
If you’ve been investing in precious metals for any period of time, you may have noticed that there are multiple published gold and silver spot prices and that they can vary – sometimes considerably. The London Bullion Market Association (LBMA) is one of the leading providers of gold spot prices, which are set twice a day at 10:30 am and 3:00 pm.
COMEX is also a leading provider of gold and silver spot prices. Other popular sites and outlets that post spot prices are goldprice.org, gold.org, bullionvault.com, as well as financial sites, such as Bloomberg.
Additionally, all online coin dealers publish their own spot prices, which presumably come from various sources. Lastly, coin dealer networks, such as Certified Coin Exchange (CCE), also publish spot prices, which many coin dealers who are members of these industry groups agree to use.
While there are a number of sources for spot prices, the industry standard, and the one used by most coin dealers in the industry is kitco.com. Kitco provides live New York spot prices for gold, silver, platinum and palladium throughout the trading day and once after-hours trading begins overseas. If you’ve been to their website, you may have noticed that they have “bid” and “ask” prices.
Ask prices are prices that dealers use when selling precious metals.
We’ll provide a quick example to illustrate this difference. Let’s say that the gold bid price is $1,900 and the gold ask price is $1,903. When you call a coin dealer looking to sell your gold coins, they’ll use the bid price to calculate their buy rate. Alternatively, let’s say that you’re interested in buying a gold coin from a coin dealer. Most coin dealers apply a premium to the ask price to arrive at a total for the coin. The difference between bid and ask prices is known as a spread. This allows coin dealers to realize a small profit when trading. It’s very similar to a brokerage fee or commission when trading stocks.
We recently published an article on premiums a coin dealers apply and why a coin dealer might be more open to discounting that premium. You can view that article here.
If you’ve done any type of online trading, you’ve probably noticed that there’s a spread between what you can buy a stock for and what you can sell it for. You’ll notice the same type of spread in cryptocurrencies, commodities, and almost anything else that trades on an exchange.
Gold and Silver Spot Prices from Online Coin Dealers
Of course, no one is required to use Kitco, or for that matter any other spot price. Any spot price or exchange can be agreed upon between the two parties. When buying from an online coin dealer, you’re effectively agreeing to their spot price, whatever it may be at the time. Most online coin dealers use a higher spot price than the spot price published on Kitco. This is because they are primarily focused on selling, so it’s in their best interest to use a higher spot price to maximize the sale and profit of their coins and bullion. Additionally, since most, if not all, large online coin dealers hedge their positions, they’re passing along their hedging fees to the consumer.
There’s not anything inherently wrong with using a higher gold or silver spot price, because at the end of the day, whenever you’re purchasing gold or silver, you should always focus on your all-in cost versus the spot price and premium. We’ll use another example to illustrate. Let’s say for instance online coin dealer ‘A’ has a silver spot price published on their website of $24.50 and coin dealer ‘B’ has a published spot price of $24.25. Coin dealer A may apply a $5 premium to whichever coin or bullion you’re interested in purchasing while coin dealer B may apply a $5.50 premium. Even though coin dealer A is using a higher spot price, your all-in cost with them is going to be less than coin dealer B.
Spot Prices and Premiums
Not to get too far off topic, but premiums can also vary based on the volume of a certain item you purchase. A coin dealer may advertise premiums as low as $4 for a particular item, which on the surface may sound better than one of their competitors, but as always, you need to look at the fine print. You may be required to purchase a large quantity of items to benefit from this low premium, which may be well beyond what you intended. Furthermore, the discounted rate may be for a form of payment that you didn’t intend to use, such as a wire.
Keep in mind that the spot price you see when you’re looking at spot prices from online dealers is likely going to vary quite a bit from what your local coin dealer is using when purchasing items. We frequently have this conversation with our customers, who tend to understand the difference after a short explanation.
Furthermore, it’s highly likely that the online dealers who use a higher spot price when selling also use a considerably lower spot price when purchasing from the public. In other words, the bid ask spread is much more substantial than that you would find on Kitco or a similar website.
If you reach out to a coin dealer and they quote you a spot price that is well below what you’re finding online, ask them to clarify which source they’re using. If it’s one of those that we mentioned above, then they’re probably using a reliable resource. If not, or if they are unable to provide you with the source of their spot price or quote, then you’re likely better off going elsewhere.
Not only are we transparent with respect to the spot price we use, but we also publish it on our website so that there’s no confusion as to the prices we use to determine buying and selling rates. Whether you’re in the market to buy or sell gold or silver coins, you can be sure that we’re not only providing you with accurate spot price information, but also some of the most competitive rates in the industry.