Why are you selling silver at a higher prices per ounce than the spot price (for example, spot price is SGD 23, why are you selling at SGD 24)?

Physical bullion always has a premium over spot price to cover:

    •       Manufacturing and assay costs to strike and certify bullion coins or bars

    •       Insured transport and storage costs

    •       Possible taxes (7% GST in Singapore was removed on October 1, 2012)

    •       Capital costs which are very high as the industry is strictly based on prepayments

None of these costs apply to pure paper silver derivatives as they represent a price exposure to the spot price with no practical means to convert to physical bullion. Hence physical bullion and paper derivatives of silver are two very different products as the former can be quickly issued in nearly unlimited amounts and is settled in currency whereas the later represents a finite physical commodity. 

The exact ratio between physical positions and paper positions is not known exactly and it can be defined in various ways. The practice to lease silver out, which would normally be counted as reserves, further complicates obtaining an accurate number. However based on the Comex futures exchange, this ratio is around 5%. Studies by the CPM Group assume a 1% ratio when other forms of silver derivatives are included. It is therefore a safe assumption that there are somewhere between 10 and 100 paper derivative claims for every ounce of physical silver.

In this context the simplicity and lack of counterparty risk of fully owning physical bullion over the long term lends itself very well as a protection against inflation, a currency crisis, and, is likely to appreciate as confidence wanes in financial institutions and complex derivatives.  However its higher transaction costs make it ill-suited to frequent trading when compared to paper silver derivatives.

On a side note, silver in the form of jewelry commands premiums of 800% + over spot prices. This is very high compared to bullion prices which, in the case of coins – such as Perth Mint coins - can also be of very high quality and finishing.