The price of a gold coin or bar varies according to the gold quotation. In principle, the price depends on the weight of fine gold per gram. However, sometimes two coins of the same weight do not have the same gold value because of the premium.
 
The gold premium is the difference between the price of the fine gold the coin contains and its negotiated price. For example, a coin may contain 100 euros worth of fine gold, but its price may rise to 130 euros. This difference of 30 euros is called the premium.
 
The premium is always expressed as a percentage and changes in line with supply and demand. This is why, in times of crisis, when there are many purchases of gold coins, their premiums, which vary from one coin to another, rise rapidly.
 
It is therefore vital to take an interest in the premium if you are to make the wisest investments. Find out in this article what factors influence variations in the gold premium and why it is an important indicator for investors.

Factors affecting the gold premium

 
Given the economic uncertainties caused by war and the various crises, it is advisable to diversify your savings. By choosing to invest in gold, you are betting on a safe-haven asset, particularly in times of crisis. Between 1970 and 2020, the price of physical gold rose by 8.17% a year. 
 
Even if the price of gold per gram can sometimes fall, this never lasts long : it is a highly prized product on the precious metals market. The gold premium is also subject to a number of factors that need to be taken into account. Here are the 4 main factors to be aware of.

Economic fluctuations

 
Over the decades, it has been proven that when currencies lose value due to inflation and economic crises, the price of gold rises. When a country's economy is weighed down by debt, gold becomes a more reliable reserve. Economically speaking, demand for gold increases as soon as a recession hits. As a result, the gold premium rises.

Socio-economic and geopolitical contexts

In the event of socio-economic crises or geopolitical tensions, governments increase their gold reserves in order to strengthen their economies and ensure their countries' political and monetary stability. When gold mining declines because of the situation, reserves are reduced. Demand then remains much higher than supply.

Interest rates

Since the Central Banks hold gold reserves, their activities stimulate supply and demand on the market. For example, if the ECB buys gold to bolster its reserves, this purchase can generate upward pressure on the price of gold. Although it is not a foolproof rule, it has been found that the price of gold rises when banks raise interest rates and vice versa. According to the experts, the fall in interest rates in 2024 should boost the gold premium, making the product more attractive.

International supply and demand

As soon as the number of gold purchases exceeds the number of sales, the gold premium rises and so does the total value of the gold coin. It should be noted that the availability of physical gold is also a parameter that influences the price of gold per gram.

At the moment, mining is becoming increasingly rare, yet gold production is closely linked to this activity. As a result, the quantity of gold available is decreasing, even though these metals can be recycled.
 
As far as demand is concerned, we have to wait for the autumn wedding season in India for the price of gold to start rising again. In China, on the other hand, the recovery of the economy after the Covid-19 crisis is favourable to investment in gold from the beginning of 2023.

 
How important is the premium when buying precious metals ?

If you are buying a gold coin or bullion with a view to reselling it, it is strongly recommended that you analyse the premium carefully to ensure that you make a financial profit. Some coins have a premium equivalent to twice the amount of fine gold they contain. This means that the leverage effect can increase the capital gain you can make. On the other hand, if you are buying gold coins to pass on to your children, the premium becomes a secondary consideration.
 
The premium is important because it tells you about the supply and demand situation for the gold coin you are interested in. It also gives you an idea of its upside potential. The following two points should also be studied carefully before buying precious metals at a premium :

• The background premium : this is the average premium for a coin when there is neither a crisis nor high demand.
• The premium differential : this is the difference between the background premium and the highest premium recorded for a gold coin.

The premium differential is therefore a crucial indicator because it tells you the potential of a gold coin. When the differential is low, the capital gain you can realise on resale will also be low, if not zero.
 
For example, the 20 franc Napoleon coin has a differential of 30%, but as the premium has already reached 50% in the past, it is one of the best-known and most sought-after bullion coins.
 
So, whatever the latest developments on the precious metals market, the gold premium is an essential indicator for assessing demand and making sound investment decisions. It helps us to understand the subtle nuances of the financial world, so that we can take advantage of the opportunities it offers.

Before buying gold, you are strongly advised to check the associated premium and the existing differential to estimate any capital gain you can expect on resale. The various parameters that influence the premium should also be taken into account.
 
To take advantage of the best investment opportunities, you can trade in precious metals - gold, silver or platinum coins and ingots - on our website or at one of our 70 Godot & Fils branches.
 
If you would like more information on the subject of the gold premium, don't hesitate to watch our video on our Youtube channel :