Boost Your Bullion Returns by Lowering the “Spread”

Clint Siegner Clint Siegner

Clint Siegner

August 3rd, 2020 Comments

The fundamental case for owning precious metals is better than it has ever been.

The fiat dollar may be nearing its end of life with Congress running multi-trillion dollar deficits, the Fed printing money to buy Treasury debt, and a growing list of nations actively seeking to replace the dollar as the world reserve currency.

Deciding to buy some physical metals as a hedge against the devaluation of the Federal Reserve Note might be the most important choice an investor can make. The next best thing an investor can do is keep the cost of their metals purchase as low as possible.

When it comes to bullion, transaction costs include the "bid/ask spread."

This is the difference between the cost of buying an item from a dealer and selling it back – assuming no change in the underlying spot market price of the metal.

The buy, or "ask," price accounts for costs dealers pay to acquire and hold inventory as well as the profit.

All coins, rounds, and bars carry a premium and it will vary based on quantity and item.

Government-issued bullion coins tend to carry a somewhat higher premium than privately minted rounds and bars – largely because governments are not efficient and incur higher costs. But those government-issued bullion coins will also bring a higher premium when the investor is ready to sell them back.

Retail-sized silver coins, rounds, and bars are currently in very short supply. There is a real bottleneck in minting and fabrication capacity. Consequently, bid and ask premiums have moved higher and it is hard for buyers to find major bargains.

To combat these market challenges, Money Metals launched Vault Silver and Vault Gold in March (and now Vault Platinum too!). These products aren’t for people who want physical delivery of their metal. They are storage-only items held at Money Metals Depository.

But for investors simply looking to maximize the returns on a physical bullion investment, there is no better vehicle. The bid/ask spreads on these items are, by far, the lowest of any products in our industry.

We’ll explain. The comparison below is based on an investment of $10,000 in two options; Vault Silver and silver American Eagle coins from the U.S. Mint. It assumes the silver market price moves from the current level of $24.50/oz to $30/oz and premiums (bid and ask) remain right where they are currently.

  Buy Price Per Ounce Ounces Purchased Sell Price Per Ounce Value of Investment (Once Spot Silver Reaches $30)
Vault Silver $26.10 ~383 $30.00 $11,494.25
Silver American Eagle $33.49 ~298 $33.50 $10,002.99

(This comparison doesn’t take into account storage fees, which are as low as 39-49 basis points per year for Vault Silver.)

Vault Silver is the better performer by 15%, and if market prices rise beyond $30/oz the returns versus those on the Silver American Eagle will likely improve further. The power is in getting more ounces for your money.

For Eagles to outperform, bid premiums will need to move higher relative to the alternatives.

Eagle premiums have certainly done well over the past 6 months, enabling sellers of Eagles to get paid many dollars over spot for their coins. However, we don’t think people should bet on further increases in premiums.

Savvy investors tend to keep the bid/ask spreads as low as possible. Money Metals Exchange makes that easy because we are one of the only dealers to publish buy prices on the same product page as the sell prices.

We are the only place to buy Vault Silver, Vault Gold, and Vault Platinum. There is simply no lower-spread option when it comes to physical bullion.

Clint Siegner

About the Author:

Clint Siegner is a Director at Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.