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  • Gold: War of Attrition [View article]
    Ummm ... gold bullion coins always trade for a premium over spot. The coin dealers have to get their handling fee for providing the market locally.

    Even gold bought via futures contract eventually costs more than the contract price because you have to arrange for insuring and shipping the delivered gold to you from the delivery location specified in the futures contract.

    This is nothing new. What is different at this time is that the demand for bullion coins is so much higher than usual that the premium is increasing. This fact is totally unrelated to the futures price as the futures contract doesn't "trade" bullion coins.

    If the spread is wide enough, you can profit via arbitrage by purchasing and taking delivery of a futures contract, paying a smelter to cast bullion coins, and selling those coins on the public market at a large markup.

    If this arbitrage were very profitable someone would be doing it by now. I'm not aware of anyone engaging in this, so I'm guessing that it's not very profitable and thus the premium for bullion coin is not overly large.
    Oct 29 16:06 pm |Rating: 0 0
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