You look up the gold price, do a quick sum for a one-ounce coin, and then see the dealer's price. It's higher. Not by a huge amount, but enough to make you stop and wonder whether you're being taken for a ride, or whether you've missed something.

Usually you've missed something, and it has a name: the premium. If you're comparing sellers, the page for nz gold merchants is one place to see how a dealer presents things, and the rest of this explains where the extra money goes and how to judge whether it's reasonable.

Spot price in plain English

The spot price is the going rate for gold in the wholesale market, usually quoted per troy ounce in US dollars. It's the headline number you see on news sites and price charts, and it moves constantly through the trading day.

The thing to remember is that spot is a reference for raw gold in bulk, delivered in large wholesale quantities. A single coin in a plastic capsule, sitting in a shop or arriving in your letterbox, is a different product, and it costs more to get it to you.

Where the premium comes from

The premium is everything on top of the spot. It covers a handful of real costs:

• making the coin or bar

• packaging and certification

• the dealer's margin and running costs

• storage, security and insurance

• delivery to you

• how much demand there is at the time

None of these is sinister. Each of them costs somebody money, and the premium is how that money gets paid.

Making the coin or bar

Raw gold has to be refined, cast or struck, stamped, checked and packaged. A mint or refiner charges for that work, and the charge is built into the price long before the product reaches a shop.

Minted coins, which are struck with a design, usually cost more to produce than plain cast bars. Recognised mints and refiners also carry a reputation, and that reputation is part of what you're paying for, since it's what lets the next buyer trust the product.

The dealer's margin

A dealer buys bullion, holds it, and sells it on. They need to cover rent, staff, security and insurance, and make a living. That comes out of the gap between what they pay for the product and what they sell it for.

Competition keeps margins in check, which is one reason it's worth comparing. A dealer with high volume can often afford a smaller margin per item. The difference between two sellers can look small on one coin and add up on a bigger purchase.

Why small pieces cost more per gram

Many costs are fixed per item. Striking a coin, packaging it and handling it costs roughly the same whether it holds a tenth of an ounce or a full ounce. Spread that fixed cost across less gold, and the premium per gram climbs.

That's why large bars usually carry a lower premium per ounce than small coins. If you're buying small amounts, the percentage you pay above spot is likely to be higher, and it's worth knowing that before you start.

Government coins, bars and "name" products

Well-known government-issued coins are easy to recognise, easy to sell and trusted around the world. That convenience tends to come with a higher premium than a plain bar of the same weight.

A bar from a respected refiner may cost less per ounce, but it might be slightly harder to sell on to some buyers. There's no single right answer. It's a trade-off between price and how easily you can resell, and it depends on what you value.

Collectable coins: a different kind of premium

Some coins carry a premium that has nothing to do with gold. Rare dates, limited editions and coins in excellent condition are valued by collectors, and they can sell for well above their metal value.

That's called a numismatic premium. It's legitimate, but it's a different thing from a bullion premium, and it isn't tied to the gold price. If you're buying the metal, make sure you know which kind of product you've been offered.

Shipping, insurance and security

Gold is heavy for its size, valuable and easy to steal. Sending it means tracked, insured delivery, and storing it means a safe or vault. Those costs have to go somewhere.

Some sellers include delivery in the price. Others add it as a separate charge. Always ask for the total cost to your door, because two quotes that look similar can differ by the cost of shipping and insurance.

The other side: the buy price

When you sell bullion back, a dealer usually pays you somewhere near spot, sometimes a little under, not the price you paid. The gap between what they sell at and what they buy at is called the spread.

That's why bullion isn't a quick in-and-out product. You pay the premium when you buy, and you generally don't recover it when you sell. It's an important thing to know, and a seller who's upfront about it is one worth trusting.

A made-up example

These numbers are invented, just to show how it works. Say spot is $2,000 an ounce. A one-ounce coin sells for $2,120, which is a premium of $120, or 6 percent. A one-kilogram bar, around 32 ounces, might have a total value near $64,300 at spot, and sell for $65,500, a premium of about 1.9 percent.

A tenth-of-an-ounce coin has $200 of gold in it, and might sell for $245, which is a premium of $45, or 22.5 percent. Same metal, very different percentages. If the dealer would buy that one-ounce coin back at $1,990, the gap between buying and selling is $130.

When premiums rise and fall

Premiums aren't fixed. When demand surges, or supply of coins and bars gets tight, premiums can rise quickly. In quiet times they may ease off.

When you're comparing nz gold merchants, notice how their premiums behave over time, not just on a single day. A seller whose prices spike unusually, or who changes them without explanation, deserves a closer look. Transparency about how the price is built matters more than the headline figure.

How to compare quotes properly

Don't compare totals alone. Compare the price per ounce or per gram, and work out the premium over spot as a percentage. Check what's included: shipping, insurance, card fees, and any storage.

Make sure the products are the same. A one-ounce coin and a one-ounce bar from different makers aren't identical, even if they weigh the same. Write the numbers down side by side, and the differences usually become clear fast.

Questions to ask

Ask what the premium is, how it's calculated, and what's included. Ask whether the price is locked when you order or when it ships. Ask what they'd pay if you wanted to sell it back, and what condition the product needs to be in.

A good seller answers these plainly. If you get vague responses, or can't get a total price in writing, that's a reason to look elsewhere.

What shouldn't be in the premium

Be wary of premiums that seem to be justified by urgency or scarcity without any real basis, or hidden fees that appear at checkout. "Limited availability" is sometimes true, and sometimes just a sales line.

If a price seems far above everyone else's with no clear reason, ask why. A fair seller can explain every part of what you're paying.

Last thoughts

A premium isn't a trick. It's the cost of turning raw gold into a product you can hold, trust and resell, plus the costs of getting it to you. Knowing where it comes from helps you judge whether it's fair.

If you'd like to see how a dealer explains pricing, visit TJ Gold and  Diamond. Whichever of the nz gold merchants you choose, ask for the total price, compare the premium as a percentage, and understand what you'd get if you sold it back.

Frequently Asked Questions

1. What does "above spot" mean?

 It means the price you pay is higher than the wholesale market rate for the gold in the product, because of making, dealing and delivery costs.

2. Why are small coins more expensive per gram?

 Many costs, such as minting and packaging, are fixed per item, so they take up a bigger share of a small coin's value.

3. Do I get the premium back when I sell?

 Usually not. Dealers generally buy back near spot, sometimes slightly below, so the premium you paid isn't normally recovered.

4. What's a numismatic premium?

 It's extra value that collectors place on rare or high-condition coins, separate from the gold content.

5. How should I compare two dealers' prices? 

Compare the total cost per ounce or gram, work out the premium over spot as a percentage, and check what's included, such as shipping and insurance.