PREMIUM & SPREAD

There are several terms need to be understood such as :

-Fiat Money : Since 1971, United States no longer printing monetary(paper money) based on the amount of Gold and Silver available at the central bank.

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-Bull Market : Market trend increment for long term for specific class of investment. Average increment in trend is between 15-20 years. This is the same like keeping Gold and Silver from now, then selling in 15 years onwards will let you enjoy the remarkable profit!

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-Spot Price : Price that is traded in the open market. For Gold and Silver, spot price reflects the price of the natural ore for both type.

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-Premium : Refer to the percentage referred by end buyer to compare the feasibility if buying an asset regarding to capital used, and benefits covered upon the owning on the property, tangible asset such as Gold and Silver.

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-Spread : Refer to the percent in difference between the price of "we sell" and "we buy".

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CASE STUDY

What are the factors need to be considered when buying Gold and Silver??

Spread and Premium............

Both factors need to be determined, facts and figures are the evidence to convince the buyer in buying Gold and Silver. let's go through one by one.

Premium

It is the amount by which the close end fund's market price exceeding the value of its holding. In other words, premium is the cost need to be paid above the normal cost. For instance, I am selling a 1 gram of Vikanda Minted Gold Bar to a buyer. The spot price for the ore mining is RM 150. I keep up the premium for the 1 g bar for 20%. Thus the exceeding price for the gold bar is RM 180. The formula to calculate the premium is given by :

(End price of gold bar per gram - Spot price of gold bar per gram) / Spot price of gold bar per gram X 100%

(Rm180-RM150)/Rm150 X 100%= 20%.

20 percent is considered quite optimum percent of premium. To ensure that customer gains more benefit upon purchasing, the premium should be as low as possible!!

Spread

Spread is actually the percent in difference between we sell and we buy price. We sell here refers to the customer's price. Upon the purchasing, customer is agreed to buy the good according to the indicated we sell price. When the customer no longer need the good and need to sell it back to bank, the bank will buy back the goods according to the current we buy price. We buy price in fact is lower than the we sell price for the purpose of banks profit. To make sure that the customer in a win-win situation, he needs to calculate the spread by using this formula, refer example :

Mr Ng wants to buy a 500 gram of Gold. He refer from the table(updated price) for the we sell price, he saw RM 8500.00 for 50g Vikanda Gold. Looking at the buy back or we buy price, it is Rm 8000.00. He calculate

(we sell - we buy)/we buy X 100%

(RM8500-RM8000) / RM 8000 X 100% = 6.25%

Mr Ng then look at the 50g Kananda Gold, we sell price is RM 8900.00 and the we buy price is Rm 8650.00. He calculate it

(RM8900-Rm8650) / RM8650 X 100% = 2.89 %

For here, you can infer that the price of Vikanda is cheaper upon purchasing compared to Kananda. Although the price of Kananda is a little bit expensive, the spread is lower than Vikanda which is very good!!! Mr Ng supposed to buy Vikanda than Kananda.

In Malaysia, GSR Sdn Bhd is the lowest percent of spread as well as premium compared to other manufacturer. I'm not saying this because this is my company but, I'm afraid that you'll regret in the future for not buying the Gold and Silver from GSR... by that time you'll know which area you are wrong and need to improve.

Afiq Safeeuddin Nordin