Many gold suppliers are currently experiencing a massive gold shortage. As a result of decreasing supply, many suppliers are placing a market premium on top of their gold prices.
Why are prices fluctuating?
Before we explain why there is currently a market premium on gold, it’s important to understand how the bullion market operates.
Global Gold Spot Market
As with other commodities, the market price of gold is mainly determined by supply and demand of both physical gold as well as non-physical gold (e.g. cash-settled, derivatives, futures trades).
The gold spot price is continuously changing, depending on the supply and demand of each geographical market (London, Shanghai, New York, etc). Normally, HelloGold sets its prices based on the gold spot market.
The supply of gold is mainly made up of:
- Gold owners
- ETF’s (GLD)
- Central banks (BNM)
- Insurance companies
- Private investors (such as the affluent through their family offices and you, our HelloGold customer)
- Refineries and scrap smelters
The global gold spot market price is mainly used as a price basis for contracts such as gold future contracts and gold option contracts, where physical delivery may not be the primary goal.
When it comes to the actual purchase and delivery of physical gold bars, a premium is added to the gold spot market price. This is because the production of gold bars or coins comes at a cost which often includes: transport, insurance, and handling. In addition, there is a profit margin of each business at each part of the process; from the refineries who make our gold all the way down to our supplier.
We can call this type of costs, or premium, ‘normal premium’, which is relatively stable in the long run.
In other words, the global gold spot market price displayed online is not the total sales price of gold when a buyer buys physical gold. The sales price is always the global gold spot market price plus this normal premium.
Factors that drive normal premium
There are other factors that can change the normal premium associated with physical gold such as:
- The quality/fineness and weight offered
- The volume of gold offered or requested
There are other factors that can also impact the price offered for physical gold which results in a premium or a discount to the global spot market.
We can call this ‘market premiums’.
Factors that drive market premiums
Market premiums are not as stable and predictable as normal premiums and are driven by factors such as:
- The current market supply and demand situation
- Global and local economic conditions
Market premiums driven by high demand
Currently, there is a physical shortage of bullion in markets. This is due to the high demand, driven by buyers, especially high net worth investors, looking to buy more bullion as a safe haven asset during this time of global uncertainty.
- Flight restrictions
This shortage is also being affected by flight restrictions. For example, there may be enough bullion in Tokyo but the reduction in flights means that the bullion stock is unable to be flown out of Tokyo to our suppliers, delaying shipment.
- Closure of operations
Some of the major gold refineries are unable to operate at full capacity because of nation-wide lockdowns. Hence, refineries are producing less refined gold supply to be distributed.
- Gold owners are hoarding gold
Holders of bullion that might have ordinarily sold their bullion back into the market (such as traders) are now hoarding it as their safe-haven asset.
- Financial inclusivity is our priority
Given the current market uncertainty, especially in regards to the gold market, gold suppliers and distributors will have to place market premiums on gold, indefinitely.
Change to HelloGold prices
As HelloGold strives to make gold savings affordable and available to all, we will have to align our prices to reflect the premiums set by our supplier for as long as there is a shortage of physical gold bars.
As always, we thank you for sharing your gold savings journey with us and we hope you will continue doing so with your trusted gold savings platform, HelloGold.
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Is it worth it to invest with such a high premium?
We provide a platform for our users to buy, save, redeem and sell gold. We do not provide advise as to how much or when to save, nor when is it profitable to sell. If you would like to find out more about gold and the market trends, there’s a large quantity of research material available either online or printed media.
We believe that gold is a long term investment/savings commodity and encourage more people to save in gold due to it’s stability. Gold is unlike the Forex market or the stock market where price may fluctuate drastically, unless of course due to some unforeseen circumstances. With our platform, we allow our customers to save in gold from as low as RM1 and allow them to accumulate gold over a period of time and they have the option to either sell it or have it delivered to them at any point in time.
The additional 7% of the fee is quite high. The investment surely can’t get any better in returns.
Our supplier, BullionStar has announced that there is a global shortage in physical gold. Due to this reduced supply of physical bars, gold suppliers are charging a premium fee for bars. This premium will be charged and vary in value for as long as there is a global shortage of physical bars and we believe this will continue until travel restrictions are lifted.
While we’re doing our best to ensure we keep this savings platform as affordable as possible, we have had to align our gold prices with our gold supplier, which is reflected on our app. However, once this premium is reduced, the premium on the app will reduce too.