Premiums and spreads

The price on the news is not the price you pay. Knowing the gap, and how to check it, can save real money.

Melt value

Start with the melt value: what the pure gold in an item is worth at the spot price.

Melt value = weight in grams × purity × spot price per gram

A 10 gram, 22 karat chain contains 10 × 0.916 = 9.16 grams of pure gold, so its melt value is 9.16 grams at today's price.

The premium

The premium is how much more than melt value you pay. It covers the dealer's costs and profit, the cost of making the item and, for coins, how sought after they are. Rough ranges, which vary by country and dealer:

• Large bars, 100 grams and up: about 1% to 4% over melt value.
• Small bars and popular bullion coins: about 3% to 8%.
• Very small items, 1 to 5 grams: often 10% or more.
• Jewellery: often 15% to 40% or more, because of making charges and design.

The spread

When you sell, dealers usually pay a little under melt value for bullion, often 1% to 5% below, and jewellery is normally bought back for its gold content only, minus a refining charge. The difference between what you pay and what you would get back the same day is the spread. It is the first thing your gold has to earn back.

Check a quote

Enter what a dealer asks per gram and the karat, and see the premium over today's melt value:

Habits that help

• Ask for the weight, the karat and the total price in writing.
• Compare at least two dealers on the same day.
• Ask what they would pay to buy the item back today. A dealer who will not say is a warning sign.