What does the premium on gold mean, and when is a higher premium worth paying?
The premium is the amount you pay above the spot price of gold. It is the dealer's cut, and it covers refining or minting, packaging, distribution and the dealer's margin. A lower premium means more gold for your money, but a higher premium is sometimes worth paying, for coins that are free of Capital Gains Tax, easier to sell, or in short supply.
What the premium actually is
Spot is the raw market price of pure gold, and it is the same everywhere. No one sells physical gold at spot; you pay spot plus a premium. On our tool we call this the "dealer's cut". If spot is £3,200 an ounce and a 1oz bar sells for £3,290, the premium is £90, or about 2.8%.
Why premiums differ between products
Bars are the cheapest to produce, so they carry the lowest premiums. Coins cost more to mint and carry a little more. Small items, such as 1g bars and fractional coins, have much higher percentage premiums because the making cost is spread over less gold. Popular coins can also see temporary premium spikes when demand outstrips supply.
When a higher premium is worth it
A higher premium can pay for itself when the coin is UK legal tender and therefore free of Capital Gains Tax, such as a Britannia or Sovereign, which on a large gain can save far more than the extra premium costs; when you want smaller units you can sell a bit at a time; or when you want the most recognisable, easiest-to-resell format. Outside reasons like those, the lower the premium, the better.
How to keep the premium low
Because spot is identical everywhere, the premium is the main thing you can control. Comparing dealers on premium, plus delivery, is the single biggest lever on what you pay, and it is exactly what the Cheapest Gold tool ranks them on.
This is general information, not financial advice.