If you want to chat with us about the blog bellow, please do not hesitate to email (sales@silver-sphere.co.za) or call us at your convenience (083 561 2375).
The great thing about social media is that it has given us that many more ways to interact with our customers. We appreciate the feedback and comments that we receive and will listen to our customers’ needs.
A question that often pops up on our Facebook Page is this: “why is the bullion coin price so much higher than the spot price of silver?” I think this is a great question, and will do my best to answer it in the next few paragraphs.
The spot price of silver is what commercial buyers are willing to pay for very large purchases of silver usually in raw form (e.g. silver granules). Risking oversimplification, the spot price of silver is the US Dollar price that mines sell to the refineries and essayers at, who then use it to manufacture the various silver bullion coins, rounds, and bars. This manufacturing process carries additional costs over and above the spot price of silver granules. For example, refining the silver granules (from 99%) to 99.99%, manufacturing of the rounds on which the specific coin design is pressed, quality control, and so on. Moreover, the manufactured silver bullion product, like the American Silver Eagle (minted by the US Mint) is distributed through very large bullion banks and retailers. Again, there is an additional premium as the middle man gets paid a cut.
So, in terms of costs, by the time the coin lands in your hand, the formula is this: Spot price + an average premium of $4.50. If the spot price is $20.00, the coin would cost R24.50.
However, the bad news is that this is the price that those living in the US pay for a silver Eagle. Investors wishing to purchase an American Silver Eagle in South Africa have the additional burden of paying a VAT of 14% (i.e. 14% on the purchase price, not the silver spot price) since silver is not seen by the South African government as a monitory metal (like gold, on which South Africans do not pay VAT). Moreover, since the coins that we sell at Silver-Sphere Trading are minted in various countries (e.g. Mexico, Austria, and Australia), the additional premium is accounted for by import costs (i.e. packaging, shipping, insurance, import agent fees, and the South African Reserve Bank clearance fees).
So, thus far, the cost formula for a silver Eagle looks like this:
Cost Price of 1 Silver Eagle = spot price + 14% VAT + shipping + insurance + other fees
Since we are importers of large quantities of silver, the $4.50 premium levied on the silver Eagle is essentially the only place where we are able to cut costs and pass it along to our clients. All of the other costs are fixed. Ultimately, however, the cost of international silver in South Africa is market related, for anyone wishing to purchase an American Silver Eagle locally would pay a market related cost as outlined above. The same applies to silver minted by local minting companies. Although there my be less associated costs (shipping, insurance, and so on), the premiums on a local ounce of silver is higher due to the low mintages of various generic rounds minted locally. To put this into perspective, the US Mint has minted and sold over 40 million silver Eagles in 2013. That is an astounding figure.
In conclusion, looking at the silver price is merely the beginning of the formula. At the end of the day, we, at Silver-Sphere Trading strive to provide our clients with the best possible prices and service. We take pride in the fact that we have a one-on-one relationship with many of our regular clients.
As Toba Beta once wrote, “Value is more expensive than price.” So stack physical silver with confidence, for its value is far higher than that of the colourful piece of paper for which you swop it.
