Spying direction is hard enough without confusing chocolate for cocoa...

WHAT'S your gold or silver really worth? asks Adrian Ash at BullionVault.

Like anything, it's worth at best the most that somebody else will pay you for it. That's the simple truth, as last month's crash proved.

There were no gold buyers in size on Friday 12th and Monday 15th April, not between $1550 and $1325 per ounce. But gold has found plenty of buyers since then, after finding a floor more than 30% below its peak of September 2011.

The surge in demand for gold and silver provoked by mid-April's crash – the sharpest drop in 30 years – is phenomenal. Internet traffic to Bullion Vault.com has doubled from recent levels, and new account openings rose more than 40% from the previous 3-month average to reach the strongest level since January 2012.

Traditional retail dealers in North America and Europe are also reporting strong demand, with some distributors hitting supply delays thanks to the real source of today's surge in global demand for small bar and coin – India and China, the world's top two markets gold consumers.

Overwhelming the physical supply chain for kilobars and other "retail investor" products, dealers in Asia haven't been able to charge this much above international prices since late 2008. Yes, America's biggest retailers are starting to plug their gaps at home, with some hot items now "Back in Stock" at 10% over the wholesale bullion price. Silver buyers in the UK are meantime being asked up to 40% more than wholesale prices for a 1 kilo bar (that includes 20% VAT – a charge you don't pay on BullionVault unless you opt to take possession). German dealers also report tight supply in gold coins, although they don't yet seem to be capitalizing on any shortage.

Does this gap between small bar and big bar prices represent some kind of paradigm shift? Large premia for retail units are in fact a common but unpredictable feature of the bullion industry. They typically hit when prices slump, inviting eager buying by private investors but leaving their retail suppliers with a sharp loss if they follow the wholesale price all the way down. Surging demand for coin and small bars emptied gold retailers across Europe and North America during the price crash of late 2008, for instance, when spot gold fell from $900 to $670 inside 3 weeks. Premiums leapt. They did the same in New Year 2011, when spot prices fell from $1410 to $1320 inside a month, catching the refiners with holiday staffing levels and hitting supply-chain bottlenecks in secure logistics. The shortages were then most acute in silver, which fell from $30.60 to $26.68 in the wholesale 'spot' market but couldn't be found at less than 10% mark-ups in the retail market (and even before UK and other European investors had to account for VAT sales tax of up to 20%). That wiped out any saving which new investors might have hoped to enjoy.

But how does such tight supply come about? Like a chocolate bar starting life as cocoa beans, small gold bars and coins typically start life in the form of large Good Delivery bars, whose quality and provenance is warranted by the wholesale market, and whose production and logistics costs are lowest. So before a new coin or small bar can reach the investing public, armoured trucks first need to be booked, together with air freight if the metal is taking the #1 route – out of London, into Swiss refiners, and onto Asia in the form of kilobars.

Vault staff then need to pack the large wholesale bars, ready for shipping. Once delivered to the refinery or mint, those big bars need to be melted down and recast or struck as small bars or coin. Those retail-sized products then need to be shipped back out to retail distributors, who will add a fourth layer of limits on order processing (office hours, staff levels, financial resources etc).

Make no mistake: this is not an "arbitrage" which holders of gold in one form can exploit simply by spotting it. The reason the kilobar premium in Singapore for instance has surged in the last two weeks (and it's fading as demand eases off) is the tight supply of production capacity, relative to dealer demand. Swiss refiners are booked solid until end-May for kilobars, we are told. So getting your metal into retail form would be hard. It is also something to which professional distributors already devote their operations.

The answer then to "What is gold worth?" is more complex, but only a little. Like silver or any other physical good, it depends both on where it is and what form it takes. Coins and small bars are currently at a premium. So is metal in Hong Kong and Mumbai. Those mark-ups are highly variable however, and accessing them as a private investor is hard. First you need to have paid all those extra fabrication and logistics costs. Then you need to find a buyer willing to pay you the premium, rather than shopping around amongst retail dealers.

Would that be the "real" price anyway? Only if you could achieve it. Yet the gap between retail-product and wholesale prices is feeding an idea popular with bloggers right now that professional "spot" prices are somehow divorced from "real gold" values. Such frustration is understandable perhaps. Last month's price-drop has cost a lot of long-term precious metal owners a lot of missed profit, and more recent buyers are out of pocket still worse.

But as professionals in the physical market, we can assure you that the spot price is the price of physical gold and silver in large-bar form right now, just as always. We go on settling physical gold and silver bars daily, picking up real physical bullion and moving it to accredited storage outside the banking world. The quality of the bars, fully allocated to Bullion Vault clients at all times as the Daily Audit shows, is warranted by the Good Delivery standards. We also have inspection reports from independent experts which make clear that what belongs to BullionVault users is indeed warranted, high-quality gold.

So the real price of physical gold right now? Go to Bullion Vault's Order Board, and you'll see firm bids and offers for Good Delivery metal, already delivered inside accredited vaults. In each location – London, New York, Zurich and Singapore – you'll enter a live peer-to-peer market, where buyers and sellers are meeting to agree their price in free competition, with instantaneous settlement inside the vault.

One side wants to pay as little as possible. The other wants to get as much as they can. So whether you think the price is too high – or too low – depends on which side you're on. BullionVault lets you set your own bid or offer. Whether you get the price that you want depends on what the other side does. But that is how markets work. And different markets for different things shouldn't be confused. There's enough trouble trying to spy gold and silver's underlying direction right now without mistaking chocolate in one store for cocoa on the other side of the world.