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Fluctuation of the premium in times of uncertainty

Fluctuation of the premium in times of uncertainty
02/06/2020

The premium of gold in time of uncertainty

As you may have noticed, the gold market has been more than hectic in the recent weeks. The reason is of course all found but let's go back.

We are a little over 4 months ago and the world is going relatively well except for a virus which is developing in China in a city unknown to the world. This "small" Chinese city where more than 11 million people live.

What was supposed to be just a small, unimportant flu quickly turned into a pandemic and invaded the world. Well, I'm not going to explain to you what has already been said and repeated but its impact on the world economy has yet to be assessed.

COVID's impact on the gold market

Following the uncertainties due to the virus and its spread, the prices of the various metals first fell due to the margin calls (link to explanation) required for the equity positions which were only going down.

Following the worsening of the pandemic, gold began to climb. Investors had no other alternative than to place their cash on a value which is and remains the most recognized in times of uncertainty: gold.

About the premium

The premium is the percentage you pay above the gold spot price for a coin or an ingot.

 

Covid 19 and its consequences (border closures, bans on population movements, reductions in international flights) impacted supply and therefore contributed to higher premiums on gold coins and bullion.

Supply reduction

All these exceptional circumstances had the effect of limiting the supply of gold on the market. Gold could no longer sell freely due to logistical restrictions.

In addition, the increase in demand between January and May, caused by buyers seeking safe haven, has pushed up the premiums for the various gold coins. GFI had already experienced similar situations during previous crises but never on this scale.

In this context, the spread (difference between buying and selling) on ​​gold bars followed the same trend, but to a lesser extent.

Recent crisis impacting the coin premium:

Period Country Parts and premium

Banking crisis 2008 France Napoleon 50%

Crisis of 2007-2009 World All coins and ingots

Greek crisis 2012 Greece Ancient sovereigns 8%

Corona crisis 2020 World Napoleon 10% and Krugerrand 9%

Period

Country

Parts and premium

Banking crisis 2008

France

Napoléons 50 %

Crisis of 2007-2009

World

All coins and ingots

Greek crisis 2012

Greece

Ancient sovereigns 8%

Corona crisis 2020 

World

Napoléon 10 % et Krugerrand 9 %

To conclude, we think it is important to diversify so as not to be overly exposed to a single investment category. Stocks, bonds, real estate, cash, etc.

GFI always advises to buy small coins with a low premium and sufficient liquidity in the market.

Premium Level Sentiment

Between 0 and 6% Reasonable premium

Between 6 and 10% Acceptable if the context justifies it (serious crisis)

Above 10% Very high premium

Risk of not finding the premium before the next crisis

Premium

Sentiment 

Between 0 and 6%

Reasonable premium

Between 6 and 10%

Acceptable if the context justifies it (serious crisis)

Above 10%

Very high premium

Risk of not finding the premium before the next crisis



Regularly visit our site to see our offers and our flash sales in order to see the products with the most attractive premium.

As a reminder, you can also use the “sort by premium” button to sort the products by increasing premium.