Why is it More Expensive to Buy Silver in New Zealand?
In the past when buying silver bars, premiums (i.e. the mark up) above the spot price of silver have been 20% and even as high as 30% in New Zealand. While premiums above spot price have reduced on silver over recent years, silver in New Zealand is still generally a little more expensive than the equivalent product overseas.
Premiums also rose sharply on many silver products during the COVID-19 panic earlier this year. Although interestingly here in New Zealand they did not rise as much as offshore. Possibly due to the refiners being in lock down for longer periods overseas. Premiums have now reduced and so here in New Zealand silver is again possibly slightly more expensive to buy than in some other countries globally.
So, Why is Poor Mans Gold More Expensive in New Zealand?
There are a couple of reasons. Firstly while silver is mined here in New Zealand most of it is shipped overseas to be refined into pure silver.
Take the well known Newmont gold and silver mine in Waihi for instance. 20 kg Doré bullion bars (bars containing anywhere from 75-90% silver and 10-25% gold) are shipped to the Perth Mint in Western Australia. There, these doré are further refined and separated into pure gold and silver bullion bars.
These bars are then sent to the international market. This means a great deal of the silver demand in New Zealand is supplied by purchasing silver in the international markets and shipping it back to NZ.
This is where the high cost comes in. Silver is only about half the density of gold so takes up a greater volume per equal weight.
So Here’s Where Geography Comes Into Play
Our isolation from the rest of the world means silver has to be shipped quite a distance and because it is relatively bulky it makes for high shipping costs. And with high shipping costs also comes high insurance costs. A boatload of silver bullion is worth, well a boatload of silver! And the insurance companies charge a high sum to cover the potential for loss.
But even more importantly silver is not called poor mans gold for nothing. Even with the sharp jump in the silver price over the past few days, the current price per ounce of silver is only about US$21.40 versus US$1843 for gold. You can buy a large amount of silver for the price of one ounce of gold (85 ounces to be precise at the current prices).
But this also means that a comparable dollar amount of silver, will both weigh a lot and take up a lot of space. So again freight and insurance is much, much more than for gold.
So this difference in volume and weight compared to value is a key factor in the higher premiums charged for silver making silver more expensive to buy compared to gold in New Zealand.
This is often more noticeable for imported silver coins. Where they can be more expensive in New Zealand than the countries in which they are minted. The freight cost on a mint box of coins could be as much as 3.5% of the total price.
Read more on gold vs silver: Should I Buy Gold or Silver? 7 Factors to Consider in Gold vs Silver
The Size of the Market is Also a Factor
The precious metals markets in New Zealand are also pretty small compared to elsewhere in the world. There isn’t (unfortunately we reckon) the demand that there is in say India, the Middle East, China, or even the USA and Europe.
So less demand often means less competition. Which will usually translate to higher prices compared to areas where the markets are more developed. Although this has changed since we first wrote about this topic in 2010. With much more competition in the precious metals market in New Zealand resulting in lower premiums and prices on silver compared to 10 years ago.
However Even Overseas, Silver Still Sells For a Higher Margin Compared to Gold
So why is this?
The simplest explanation is that it is a reflection of the greater “work” that goes into fabricating silver in proportion to its value – compared to gold.
That is, the premium includes a fabrication cost and it takes about the same amount of man hours to fabricate an ounce of silver as an ounce of gold, but the silver costs much less (85 times less currently) when it is sold. Therefore the premium as a percentage of silver’s price is higher.
But Silver May Have More Upside Than Gold
The last few days have shown how fast silver can move.
Therefore when buying silver an argument can be made that any higher margins, may well be made up for by the potential gains in silver being even greater than gold.
Just a few of the reasons often sited include:
1) Silver is still to reach previous highs.
Gold has well and truly surpassed its nominal high from 1980 of US$850 whereas the price of silver is still someway off its 1980 high of US$50, when the Hunt brothers had basically cornered the silver market. (See: The Real Hunt Brothers Silver Story)
Some would argue that these prices were “bubble-like” and not fair comparisons. However the likelihood is that gold and silver will eventually reach bubble prices again in this bull cycle. A general rule is prices usually make extremes in either direction at the start and end of a cycle.
2) Silver has even further to reach inflation adjusted highs.
Gold has to rise to US$3017, just to reach its inflation adjusted 1980 high of US$850. i.e. a 63% rise from here. Silver has even further to go needing to reach US$139 to match its inflation adjusted 1980 high of US$50. About 550% higher than now.
3) The gold silver ratio is currently way above long term historical norms.
The Gold Silver ratio is simply the amount of ounces of silver you can buy with one ounce of gold. Currently it stands at 85:1. In the last 25 years it’s been as high as 130:1 (during the market crash earlier this year) and as low as 38:1.
The long term ratio (we’re talking hundreds of years here) is about 16:1. The same as the ratio of silver to gold in the ground. At the end of the last bull market in precious metals the ratio reached 16.
If it was to reach 16 again silver would have to rise significantly from here comparatively to gold. Even to reach the higher level of 30 would still be a large increase.
4) Silver is being used up?
There is also the somewhat contentious argument that as silver has many more industrial uses than gold, that silver is being used up. Whereas pretty much all the above ground gold ever mined still exists today. So the theory is that the silver supply is steadily diminishing. Versus the gold supply which slowly rises every year.
Read more: Could silver be worth more than gold?
However this greater industrial demand is a doubled edged sword. As this makes silver even more volatile than gold. Silver reacts even more to changes in the global economy. Clearly demonstrated in the share market crash during the early stage of the COVID-19 panic this year. When silver plunged to US$11 per ounce. Albeit, before bouncing back sharply.
Is Now a Good Time to Buy Silver?
So – silver is not for the faint hearted. Buying physical silver is not a short term investment. But rather a long term speculation on the end of paper money. Or perhaps a better way to look at it, is as financial insurance that also potentially has high upside.
Buying when the price has risen and getting close to previous highs is generally not the way to operate in the precious metals markets. However silver is now breaking out above the highs from recent years. The chart below also shows silver is a long way from the 2011 high still.
So it could make now a decent time to buy. As higher prices are now looking more likely in the medium term. Just don’t expect this to happen in a straight line!
Our theory, like with gold, is to buy regularly to get a good overall price. As trying to time the lows in the gold and silver markets is very difficult to do.
We have been getting more questions on how to buy silver in NZ. This could well be why “poor mans gold” looks to be playing catch up with gold’s greater gains of the past decade.
We are also hearing people say “I can’t afford gold at the moment so might just buy some silver instead.” If gold continues to rise there will likely be more and more people the world over adopting this approach. This is likely to be a factor in pushing the silver price even higher.
If you’d like to know how to buy silver in NZ for less, then visit the link below to see what products are available currently… How to buy Silver in New Zealand.
Or if you’d like a quote right now freephone 0800 888 465.
Editors note: This article was first published, 24 September 2010. Last updated 22 July 2020 to include latest prices, and changes in premiums. Along with the fact silver is now cheaper in New Zealand than it was in 2010.