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Why isn’t the gold market price the same as the purchase price for gold coins and bars?

When first buying gold coins or gold bars, you may be discouraged by the fact that the gold market price for the day is a little less than what you are being asked to pay for the gold coins or bars you are buying.

 

The gold market price is set for gold as a commodity. But when you buy gold you are buying a “product”. There are manufacturing and handling and transportation costs involved in the creation of gold coins and bars.There are a few reasons why the physical gold you buy is going to cost more.

Companies and their employees have to earn an income from fabricating coins and bars.

You can usually minimize the manufacturing costs by buying gold bars instead of coins. The cost of moulding or minting a simple gold bar is less than for a coin.

If you do buy gold coins, you will also find a difference in the premium placed on different coins. For instance, the premium you pay on the base cost of a gold Krugerrand is less than what you’ll pay for an American Gold Eagle or Canadian Gold Maple Leaf.

Looking at the prices from a major dealer today (Aug 18, 2014), here are the prices quoted for three different gold coins, all of them one-ounce.

Gold Eagle 1 oz – $1,353.60

Gold Maple 1 oz – $1,336.606

Gold Krugerrand 1 oz – $1,332.60

And here is the price quoted for a one-ounce gold bar.

Gold Bar 1 oz – $1,328.60

As you can see, there is a significant spread in price across what you’ll pay for the exact same amount of gold.

You also need to factor in the cost of shipping and insurance, which can often amount to $40 or more.

To get the very best deal, and minimize the premium you pay over the gold market price, you should buy gold bars and, if possible, pick them up from the dealer in person, so you don’t pay shipping and insurance costs.