An explanation of silver premiums
Spot price is the paper trading price for a COMEX futures contract of 5,000 troy ounces of silver.
One way to think about it is like barrels of oil. A barrel of crude oil contains 42 US gallons and is trading at around $65 per barrel, or roughly $1.57 per gallon.
So why is the price of gas at my local gas station higher than $1.57 per gallon?
There is a markup that comes at each step in the supply chain before it reaches the consumer.
Let’s say that a private mint like Scottsdale Mint buys a 5,000 ozt contract from COMEX and takes delivery.
There are costs to take delivery of the raw product, including transportation, security, settlement costs, etc.
The delivery will most likely consist of five 1,000 ozt bars.
The next step is to cut up a 1,000 ozt into pieces that can be melted down or to feed into an extrusion line.
Labor costs, cost to operate the furnace, equipment costs, etc.
Once the bar is in liquid form it can then be poured into molds to form bars. Or if the mint is using extrusion, into sheets or extruded bars, etc.
After that it needs to be weighed and stamped or pressed then packaged up to be sent to wholesalers or retailers.
The wholesaler will need to pay the mint for the manufacturing costs plus their profit and the cost of transportation from the mint to the wholesalers warehouse or depository.
The wholesaler then incurs costs to warehouse the metal, employ people to take orders, and pack and ship to retailers.
The retailer will pay for the metal plus the profit margins the wholesaler needs, the transportation costs from the wholesaler to their warehouse, depository or retail store.
Then the retailer has overhead costs. Rent, employees, utilities, etc.
They also need to make a profit if they are going to stay in business.
Each step along the supply chain adds additional cost.
These costs are all factored into the premium, which is why it costs more than spot price to buy silver.
