The Premium on Gold Coins.

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In the United Kingdom, the current premium is dependent on source, quantity, supply and demand and currently can range from 5% to over 40% depending on source and condition.  But what is this premium for gold coins?

The premium is the difference between the current gold value contained in the coin and the price paid for the coin and is usually expressed as a percentage. The price and premium depend on market factors at the time and are constantly changing.

e.g., a Sovereign may contain gold with a value of £160 but be worth £199 and for a newly minted proof coin £299 . The difference between these two figures, expressed as a percentage, is the premium thus the proof coin is sold at approximately 46% premium

The premium for a coin is linked to several criteria:

  • · Production: The smaller the coins and the harder they are to produce, the more chance there is that they will have a high premium, this principle that explains why the smaller half sovereign have a higher premium.  The quality of a proof coin usually demands a higher premium
  • · Speculation: the premium changes to reflect supply and demand. In a period where more coins are being sold than are being bought, the premium is zero or slightly negative (in this situation, coins of moderate quality are often melted down). When there is high demand or excess speculation, the premium resulting from this speculation climbs sharply. The premium is therefore a very good indicator of the balance between supply and demand, the latter’s potential and also what actions should be taken. A negative, zero or slightly positive premium should stimulate purchases whilst a high premium of should lead to selling.

Premium = ((Price of coin – Value of gold) / Value of gold) x 100

· Conservation: a quality coin that has no trace of being handled will retain all its premium. Poor conservation conditions (contact with fingers, scratches, wearing…) results in a reduction of 4 – 10% and can lead to a negative premium. When this happens, the coins are melted down and sold for the price of their precious metal

· Geographical location: gold coins are not equally popular in every country and generally speaking coins that were the currency of a country are more popular in that country e.g.: Napoleons are very popular in France but are much less well known in China or the USA and people there prefer to buy local coins the exception is the Sovereign which is the most popular in the UK but also has an international reputation.

· Collectors: some coins are rarer due to them being minted in small numbers or because they have special characteristics related to numismatic rarity criteria. In certain years where very, few coins were minted a sovereign can cost several thousand pounds depending on its rarity and its condition. This value is therefore completely unrelated to the value of the coin’s gold content.

Premium differential: This the differential between the basic (normal) premium and the highest sale price usually in times of crisis where there is great demand.

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