Why does Physical Gold cost more than the Gold Spot Price?

New bullion buyers often wonder why the fluctuating Gold Spot Price is lower than the price for the various Gold Bullion products we offer on our website. Here we will explain (#1) what is the gold spot price and (#2) its relation to the physical gold bullion market. 

First, let us begin with some simple definitions so we can all be on the same page so to speak.

Physical Gold - (n) refers to gold bullion typically in a .999 fine gold coin or gold bullion bar format, yet there are also highly traded modern 22k gold coins which are also considered physical gold amongst gold bullion buyers (e.g., 22k American Gold Eagle Coins, 22k South African Gold Krugerrand Coins). 

Gold Spot Price - (n) the price of theoretical fine gold delivered right now. It gets determined by gold futures contracts with the most trading volume.

Almost all online gold bullion dealers host live gold spot prices quoted real-time on their website, typically based in their local currency (e.g., US dollars, Canadian dollars, euros, yuan, etc.).  

The physical gold bullion buying and selling industry is incredibly competitive. Typically with United States online gold bullion dealers, the gold bullion products available to purchase and take delivery of are priced per troy ounce of gold. In the USA it is often possible to acquire gold bullion at mere basis points (i.e., less than 1% above) or perhaps only a few percentage points above the fluctuating gold spot price.

The additional price for acquiring physical gold bullion products is due to the costs associated with refining, manufacturing, minting, marketing, hedging, and warehousing the particular gold bullion products on sale.  

In contrast, when selling gold bullion to online gold bullion dealers, gold bullion products will typically yield a sale or bid price at or just below the fluctuating gold spot price (depending upon the gold bullion product type and gold mint hallmarks sold to the gold dealer).

The following chart gives the standard relation in physical gold vs. gold spot price relations during normal market conditions.

gold bullion vs gold spot price SD Bullion SDBullion.com Why does Physical Gold cost more than the Gold Spot Price?

Gold Bullion Prices During Calm Financial Markets

When the financial markets are calm, investment-grade gold bullion product prices hover slightly over the fluctuating gold spot price. For example, if gold’s spot price is $1,400 oz, most physical gold bullion products will be priced slightly above $1,400 per troy ounce of gold bullion.

During calm market conditions, the range in gold bullion product prices is as low as mere basis points (i.e., less than 1%) above the gold spot price for large gold bullion bars to a few percentage points above gold’s spot price for various gold coins guaranteed by governments.  

Gold Bullion Prices During Volatile Financial Markets

When significant physical gold bullion market demand occurs as it did during the 2008 Financial Crisis, gold bullion prices for products climb higher and often on both the sell and buy-side to levels which can both hover above the world’s fluctuating gold spot prices.  

Take a look at how the world’s most popular gold bullion coin was priced as high as +25% over the fluctuating gold spot price in the fall of 2008.

physical gold vs gold spot price SD Bullion SDBullion.com Why does Physical Gold cost more than the Gold Spot Price? Gold Eagle Coin Premiums above gold spot price fall 2008

1 oz American Gold Eagle Coins traded over

25% above the then gold spot price in the fall of 2008.

In other words, the then spot price of gold may have neared $700 oz

but 1 oz American Gold Eagle Coins were selling $875 oz on average.

Gold’s spot price vs. Physical gold bullion currently functions like so: 

- Gold futures contract traders buy or sell gold futures contracts on worldwide futures exchanges. Although often not physically exchanging any real-world commodity, gold futures contract trading ‘price discovery’ determines fluctuations in gold spot prices in various fiat currencies around the world, including the fully fiat US dollar gold spot price.

- Gold miners extract and often sell mixed gold ore and doré bars to gold bullion refiners at rates just below the world’s fluctuating gold spot prices.  

- Gold refiners of purifying the gold ore into .999+ fine bullion, 22k gold planchets, or into .999 gold grain then sell these products to governments, mints, or gold bullion dealers at or just above gold’s spot price.  

- Both government gold mints and private gold mints alike strike gold bullion coins or manufacture gold bullion bars. They then sell them to gold dealers or the public at large at prices typically above the fluctuating gold spot price.  

- Retail and wholesale gold bullion dealers like us here at SD Bullion... we produce, procure, and sell gold bullion products for discreet fully insured delivery to door or to professional fully insured segregated non-bank storage facilities at prices just over gold’s fluctuating spot price.

You can learn more about Gold Bullion and the global gold market by visiting our Gold
Fundamentals page
or by requesting our free 21st Century Gold Rush PDF guide right now by email.

Thank you for visiting us at SD Bullion.

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James Anderson
James Anderson
Senior Market Analyst & Content

A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold & Silver Guides and has been featured on the History Channel, Zero Hedge, Gold-Eagle, Silver Seek, Value Walk and many more. You can pick up Jame's most recent, comprehensive 200+ Page book here at SD Bullion.

Given that repressed commodity values are now near 100-year low level valuations versus large US stocks, James remains convinced investors and savers should buy and maintain a prudent physical bullion position now, before more unfunded promises debase away in the coming decades...