Sovereign and coin premium in gold trading

The premium on a gold coin is the difference between its selling price and the value of the gold it contains at the spot price. A British sovereign contains 0.2354 troy ounces of fine gold; at $4,000 per ounce its melt value is $941.60, and a dealer might sell it for a few percent above that. Premiums vary by coin (smaller coins carry higher percentage premiums), by dealer, and by market conditions. Rare or historic coins carry an additional numismatic premium unrelated to the gold price.

How it applies to gold trading

Premiums are a demand gauge. In calm markets, common bullion coins sell for low single-digit percentages over spot and are bought back a little below spot. When retail demand surges, as in crises, premiums can jump and dealers can run out of stock, even while the XAUUSD price is falling. A widening gap between retail coin prices and the spot price therefore tells a trader something about physical demand that the chart does not.

For buyers, the premium plus the buy-back spread is the round-trip cost of owning the coin, in the same way spread and swap are the cost of a spot trade.

A common mistake

Paying a large premium for a “limited edition” coin and expecting to recover it on sale. Only established numismatic coins hold such premiums; most commemoratives sell back near melt value.

See also: Bullion, Making charges, Paper gold vs physical, Karat.

Frequently asked questions