Hi, sorry for possibly noob Question, am new to the precious metal world.
Why is the premium on Silver so large?
example, 5kg Silver bar from ABC is advertised @ $6070, spot price is about $5750, 5%
Compare with gold
50g minted bar from Perth mint @ $3990, spot price is about $3900 so less than 2% markup
Premiums have been extraordinarily high for a little over a year, basically since the early days of the pandemic. I have an online premiums spreadsheet from early 2020 where you can see how things looked before, at least in the US:
Google Sheets link.
Silver always has higher premiums than gold. The primary reason appears to be the huge difference in price, basically the economies of scale. A troy ounce of silver is usually in the $20 - 30 range, while an ounce of gold is going to be around $1,700 - 2,000 in recent years. The same sorts of processes and equipment go into manufacturing or minting the retail coins, rounds, and bars for both silver and gold, so it makes sense that the gold has lower premiums. To make any money off of a $20 - 30 product, you'll typically need a few dollars worth of markup, which will be a chunky percentage like 10% or more. If for example, you want four bucks of margin on your one ounce silver products, well that's going to be a 20% markup/premium if your cost was $20, whether it was spot price or whatever. By contrast, you can make $50 easy on an ounce of gold, which given the spot price comes to a much smaller percentage.
The premiums on retail silver seem much smaller than normal retail premiums in other sectors, like clothing or computers, such that I've asked how dealers even make money. It seems like a threadbare business model.
Note that, as alluded to above, the premiums on gold are still much higher in
absolute dollar amount, e.g. it could be $30 - 100 on an ounce, which is more than the entire price of an ounce of silver, where the premiums are normally just $1 - 5.
The current high premiums on retail silver are presumably temporary, caused by a huge surge in demand related to the pandemic and now perhaps by Biden's extravagant attempts to bankrupt the US with unprecedented spending increases in a context of an already accrued massive debt load. Demand will eventually taper, and I think retail silver premiums might already have started to drop. I have no idea how long it will take to get back the pre-pandemic premiums – it could be another year or two, maybe longer. But even after retail premiums normalize, silver will still have larger premiums than gold. A 5% premium is actually pretty low for silver – I haven't seen less than 4% on any product in my spreadsheet, and you might be hurt by the fact that a 5 kilo bar is very niche and not normally sought (I've never seen or heard of one in the US – 100 and 1000 oz bars are the most common for >1 kilo sizes here (a kilo is about 32 troy oz)).. There were lower premiums on smaller sizes before the pandemic: 4.1% on both 1 kilo and 10 oz bars, as seen in my spreadsheet.
