Sunnah Currency: Investing in Precious Metals - What is Premium Over Spot?
As a Muslim investor, you might be interested in investing in precious metals as part of your overall investment strategy. One term that you will come across frequently when dealing with precious metals is "Premium Over Spot." In this article, we will explain what Premium Over Spot is and why it is important when investing in precious metals.
What is Sunnah Currency?
Before we delve into the topic of Premium Over Spot, let us first understand what Sunnah Currency is. Sunnah Currency is a term used to describe coins and currencies that have been mentioned in Islamic texts, specifically the Qur'an and the Hadith. Examples of Sunnah Currency include gold and silver coins such as the Dinar and Dirham.
Many Muslims believe that using Sunnah Currency is a way to avoid riba (interest) and to preserve the value of their wealth. Sunnah Currency is seen as a form of wealth that is not subject to inflation and can be used to conduct trade and commerce in a way that is consistent with Islamic principles.
Why Invest in Precious Metals?
Investing in precious metals such as gold and silver has been a popular investment strategy for centuries. Precious metals have been seen as a safe haven asset that can protect investors from inflation, currency devaluation, and economic uncertainty.
In addition to their use as a store of value, precious metals are also used in a variety of industrial applications. This means that there is always a demand for precious metals, which can lead to long-term price appreciation.
Understanding Premium Over Spot
When you buy precious metals, you will notice that the price you pay is not just the spot price of the metal. The spot price is the current market price for the metal at the time of the transaction. The price you pay will be the spot price plus a premium, which is the amount charged by the dealer or seller for the product.
The premium over spot is calculated as a percentage of the spot price. For example, if the spot price of gold is $1,000 per ounce and the premium over spot is 5%, the price you would pay for one ounce of gold would be $1,050.
The premium over spot can vary depending on a variety of factors, including the type of metal, the form in which it is being sold (such as bars or coins), and the quantity being purchased. Generally, the smaller the quantity being purchased, the higher the premium over spot.
Factors Affecting Premium Over Spot
Several factors can affect the premium over spot when buying precious metals. These include:
Type of Metal
The premium over spot can vary depending on the type of metal being purchased. Gold and silver tend to have lower premiums over spot than other metals such as platinum and palladium.
Form of Metal
The premium over spot can also vary depending on the form in which the metal is being sold. Coins tend to have higher premiums over spot than bars due to the additional costs involved in minting and producing the coins.
Quantity Being Purchased
The quantity of metal being purchased can also affect the premium over spot. Generally, the smaller the quantity being purchased, the higher the premium over spot. This is because dealers and sellers have to cover their costs of production and shipping, which can be spread over a larger quantity of metal when selling in bulk.
Why Premium Over Spot Matters
As an investor in precious metals, it is important to understand the concept of premium over spot. This will help you to make informed decisions about when to buy and sell your precious metals.
When buying precious metals, you should aim to pay the lowest premium over spot possible. This will maximise your potential returns when you decide to sell your metals in the future. Additionally, paying a lower premium over