No-premium silver coins: paying close to spot price

No-premium silver coins: paying for the metal, not the story

Buying physical silver at the price closest to spot is, on paper, simple: 999-fine ounces, 31.1 grams, huge mintages and designs that barely change from one year to the next. There's the Austrian Wiener Philharmoniker, the Mexican Libertad, the Canadian Maple Leaf and the American Silver Eagle. The face value is anecdotal —1.5 euros in the Austrian case— what matters is that inside there's a troy ounce of metal. They come in tubes of 20 or 25 units, without a capsule, and their purpose is not to decorate a display case: it's to store metal and wait.

The trap lies in the markup. In English, premium simply means markup; in Spanish it has come to miccionan «a high markup». On top of the Comex price are added manufacturing costs, distribution, VAT and the seller's margin. The result is a bid-ask spread that in Spain eats up much of the appeal: anyone buying and selling the same day can lose a notable percentage, and no chart can fix that percentage.

What separates a bullion coin from a proof or a round

The top tier belongs to proofs, mirror finish and collectible vocation, with short mintages and soaring premiums. One step below are rounds: silver ounces struck by private companies that are not legal tender, even though their purity is identical. In between sits pure and simple bullion, the kind bought by the kilo and stored in tubes.

Some argue the list should be expanded with pieces like the Cook Islands dollar, the Armenian 500 drams of the Arche Noah series —made in Germany and with a celebrated design— or the Andorran diner. The problem, other voices point out, is that a coin only proves it carries no premium if it repeats its design and format for several years; with a single issue there is no series, just a bet.

VAT and the spread: why silver is not gold

Here comes the figure that shatters many daydreams. In Spain silver carries 18% VAT; in Germany, 7%; in Austria, 20%. Gold, by contrast, is exempt across the European Union. This tax asymmetry explains why dealers apply wider margins to silver than to gold and why the same product costs differently depending on the border. Any strategy that involves buying in one country and crossing the border with tubes in the trunk runs into VAT and capital controls: above 10,000 euros there is a duty to declare, and the calculation is based on the metal's value, not the face value printed on the coin.

The appreciation of some issues has been real. The 2011 5-ounce Noah's Ark all but vanished from the market overnight and came to trade above 150 euros when it previously moved between 130 and 135. The 2012 10-ounce version was minted in 2,003 units and the 5-ounce in 3,550. These are figures that invite thoughts of scarcity, though it's worth remembering that scarcity is only worth what someone is willing to pay for it.

Bullion buyers versus collectors: two ways of looking at the same ounce

The pure bullion buyer ignores designs, mintages and mint marks. They want metal at the lowest possible cost and accept they will never get it exactly at spot. Facing them is another profile that has moved past that stage and buys varied coins, completes series and pays premiums for specific finishes. They are not enemies: they are two different moments of the same journey.

The Royal Canadian Mint itself has made a move. The 2014 Maple Leaf introduced a new finish with radial lines and a security mark, in an attempt to finally solve the milk spots problem that plagued earlier issues. The Perth Mint, for its part, launched the Saltwater Crocodile in tubes of 25 units at a tri-pack price, seeking its own no-premium bullion. The choice of animal raised doubts: a premium version of the same crocodile already existed, and overlapping two products with the same motif did not seem like the best commercial strategy.

How an ounce's value is really measured

The beginner's mistake is to look only at the purchase price and confuse it with value. The second mistake is believing that a coin's value is set by the Comex. What measures a piece's real interest is the spread between what it costs to buy and what you're offered to sell it at the same moment. If that difference is wide, the coin is a bad vehicle no matter how pretty it is.

That's where the type of intermediary comes in. A numismatist pays better for a piece with a premium because their end customer is the collector. A metal dealer pays according to the metal. Choosing the wrong exit channel can cost more than having paid a few euros extra on the way in.

What if silver falls? Then the coins fall. It's the downside accepted from day one, and no mirror finish can hide it.