Why Do Gold Bars Have Lower Premiums?

If you’ve been shopping around for your next gold purchase, you’ve likely noticed that gold bars don’t cost as much as gold coins. In fact, on an ounce-for-ounce basis, gold bars are almost always (barring short-term sale prices) cheaper than gold coins of the same size.

This page will walk through the reasons behind the different premiums over the spot price. There are reasons for both price points, and you need to understand them to decide how you want to proceed.

Production, Size, Design and Manufacturing Costs

One of the primary reasons that gold bars are cheaper than gold coins is that production costs are lower. In fact, gold bar producers have several aspects of their process that are simpler, easier, and – most importantly – cheaper to execute than that of gold coin producers.

Design

Gold bars usually have a lower degree of design elements than gold coins. In particular, gold bars that are created through casting, where molten gold is poured into a simple mold, are usually stamped simply with their purity marks.

Though minted gold bars have significantly more detail than their cast counterparts, they typically do not have the level of detail found on coins. In fact, coin designs are often codified into law and must meet certain specifications.

Handling

Because gold bars don’t have the same level of design specificity as coins, they don’t require the same level of care in the production process. Certainly, the casting process is relatively crude – you pour the gold into a mold, then wait for it to cool.

However, even minted bars don’t bear the same level of concern. Even an “error” bar, where the bar is struck off-center or with faulty dies, really isn’t going to affect its value so long as the gold weight remains the same.

Likewise, storage of gold bars is easier because you don’t have to take care to preserve their designs and conditions. In a sense, they’re just a rougher product.

Economies of scale

Gold bar producers can also take advantage of economies of scale in their production process. Economies of scale mean, in essence, that it is more cost-effective to produce a bunch of something than a small amount.

For gold bar producers, it means that they have to pay the same fixed costs to turn on the lights and run their machines no matter how many bars they make, and they can acquire the raw materials to make the bars at significant cost benefits if they buy in bulk. Gold coin mints cannot necessarily take advantage of these same cost benefits.

Market Demand and Investor Preferences

Another element contributing to the lower premiums associated with gold bars vis-a-vis gold coins is a simple one: demand. The desire for coins goes beyond the desire for bars because of the fact that almost every type of precious metals investor wants coins, while not all of them want bars.

Investor and institutional appeal

The reason behind the universal appeal for coins, regardless of whether we’re talking individual investors or institutional ones, is that there is much less concern about authenticity. Coins are the product of sovereign governments and come with the official warrant of their home countries.

Furthermore, gold coins are more liquid than gold bars, as their unquestioned provenance removes doubt in the mind of buyers. Both investors and institutions recognize the value in being able to move investments more easily.

Industrial use

Now, to be sure, gold has some industrial uses beyond jewelry. In particular, the electronics industry uses gold’s conductivity to make its circuits more efficient. Needless to say, industrial users are more likely to buy in bulk and not care whether the gold has a pretty design on it.

However, barring a technological breakthrough that consumes more gold, the demand for bulk gold is in no danger of eclipsing the need for smaller and more intricate pieces of it.

Should I buy gold bars?

It depends on your investment goals.

Gold coin investors want high-quality items that have valuable elements going beyond their metal values. Part of the value of gold coins is derived from their condition, rarity, and historic significance.

In general, the older, rarer, and closer to mint condition a coin is, the more valuable the coin will be. Thus, it’s not just about buying gold coins – it’s about which gold coins you choose to buy.

Gold bar investors, on the other hand, are trying to build up their stores of gold, pure and simple. Gold bars generally aren’t revered for their design or provenance – their value is almost entirely a function of their metal content.

There are a few things to realize, though:

• Gold coins require an extra level of care that gold bars do not – you must take steps to maintain their condition in order to maintain their value. So, gold bars may be easier if you’re not a details person.
• Gold bars are not as liquid as gold coins. Although you can find traders on both sides of deals for either one, it is a bit easier to find them for coins because coins are so ironclad in their authenticity. For that matter, most coins are legal tender, while bars never are.
• Gold bars might need to be authenticated, particularly if you receive them as gifts or from an untrustworthy dealer. Gold coins do not.
• The premiums on gold coins can escalate dramatically over the spot price if they are of particular note. The premiums on gold bars are less likely to change very much.

In the end, there’s no wrong answer. We are, by no means, financial advisors. There’s nothing stopping you from purchasing gold bars, gold coins, both, or none at all.

What matters is that you understand the considerations that go into each type of purchase.

Other articles of interest:

• Gold bars vs. gold coins
• Gold eagles vs gold buffalos
• Allocated vs unallocated gold
• Most popular gold products

Conclusion

In short, the lower-intensity production process and the different demands for bars versus coins result in lower premiums on gold bars. However, coins may offer increased value beyond their metal content in a way that bars cannot.

If you’re ready to get started with gold bars, though, we are here to help. JM Bullion offers the opportunity to buy gold bars in a wide variety of sizes and shapes.

We have options ranging from the large 1-kilo gold bars all the way down to bars only weighing ½ a gram. The most common weight for our gold bars are the 1-gram bars – we have more than 100 different options in that size.

However, whatever type of gold bar you want, we probably have it in stock. You can find the type of bar you want from our gold bars page, or – if you prefer a more personal touch – our team is available by calling 800-276-6508.