Bullion is gold and silver in the form of bars and ingots and are considered pure metal. These metals are usually stored as reserves by governments around the world.
Gold is considered the most stable store of value because it isn’t affected by inflation.
Silver has been used throughout history as currency, and it is still widely accepted today. Bullion (see also ‘What Is A Silver Bullion?‘) is produced by extracting precious metals from the earth as gold ore which is a combination of rock and gold.
The process begins with miners finding gold or silver deposits underground. Once the minerals are found, the next step is separating the gold or silver from the surrounding rock. This process separates the metal from the impurities within the stone.
After the separation occurs, the metal is melted down into smaller pieces.
Finally, the metal is poured into moulds and formed into bars or ingots. Bullion is sometimes referred to as “parted bullion,” meaning that it contains one type of metal. Unparted bullion refers to a bullion containing multiple types of metal.
Many countries mint their own coins, but some do not. In those cases, bullion dealers buy up large amounts of coinage from different countries and melt them down together to make larger quantities of bullion.
Is It Legal Tender ?
Bullion is sometimes considered legal tender, most commonly held in reserves by central banking institutions or used by institutional investors as a hedge against inflationary effects in their portfolios.
In addition to being used as currency, it can be used to settle international debts or stimulate economies through gold lending.
Central banks lend gold from their bullion reserve holdings to bullion banks at rates of around 1%. These banks then lend out the gold to borrowers at a slightly lower interest rate.
They may also buy physical gold directly from miners or refiners. Bullion banks act as intermediaries in the precious metals market, buying and selling large amounts of gold and silver.
They clear risk management hedges, trade, vouch for customers, and provide storage for clients.
The Market
Bullion is traded in the over-the-counter (OTC) market, which is primarily a 24/7 market. This means there are no central exchanges where trades take place, unlike equities and futures contracts.
Instead, most transactions occur via electronic systems or by telephone. For example, investors trade physical gold bars, coins, and other forms of bullion.
As mentioned, most transactions are completed electronically or via phone. However, some traders prefer to physically meet face-to-face.
In addition, there are many different types of bullion markets around the world, including those located in London, New York City, Tokyo, and Zurich, among others.
Gold bullion is priced based on supply and demand. Companies that use gold to make jewellery and other goods sell large amounts of bullion to buyers.
They do this because selling large quantities of gold is cheaper overall than buying smaller amounts of gold. As a result, demand for bullion drives up the price. Conversely, when people stop buying bullion, the price falls.
Demand for bullion is also driven by factors such as economic growth, inflation rates, political instability, and consumer confidence. A strong economy usually leads to increased demand for bullion.
In addition, the price of gold bullion tends to follow changes in the broader stock market. If stocks rise, investors often feel wealthier and spend money.
As a result, they purchase more gold bullion. At the same time, if stocks fall, people become worried about the future and invest less in precious metals.
Purchasing And Investment
There are many different ways to purchase and invest in bullion. Whether you prefer physical gold coins, bars, or even silver rounds, there are plenty of options to choose from.
If you’re interested in investing in precious metals, here are some of the most common ways people do it.
1 – Gold Bars & Coins
Gold bars come in a variety of sizes, including one ounce, half ounce, quarter ounce, and tenth ounce.
One-ounce gold bars are typically used for making jewellery, while larger bars like 10 oz and 24 karat gold coins are often used for industrial applications.
Most investors buy gold bars because they offer greater stability than buying individual gold coins. When purchasing gold bars, make sure you know what type of bar you’re getting.
For example, American Gold Eagles contain.999 fine gold, while Canadian Maple Leafs consist of.9999 pure gold.
The United States Mint produces bullion coins, while some foreign mints and several private mints do too. These are special versions of regular circulating coins that contain precious metal such as silver and gold.
They’re called bullion coins because they are intended to hold their value over time, just like real bullion. There are many different kinds of bullion coins.
Most are commemorative coins, meaning they commemorate something important about history, people, places or events. Other types include collector coins, proof coins and uncirculated coins.
For a coin to be considered “a bullion coin” it must meet certain requirements. First, the coin must be minted under authority of a recognized government, such as the U.S. Mint.
Second, the coin must be struck at a mint facility operated by a recognized government. Third, the coin must be manufactured according to strict quality control standards.
Fourth, the coin must be authorised for sale outside of the country where it was originally minted. Finally, the coin must bear the name of a specific country.
2 – Physical Silver Rounds
Silver rounds are another option for investors looking to add precious metal exposure to their portfolio.
While silver rounds are less expensive than buying ounces of silver, they still carry a premium over spot price. Purchasing silver rounds usually involves placing a bid on a specific number of rounds, such as 100, 500, 1000, 5000, etc.
Once the round reaches the specified amount, the seller ships it out to the buyer.
What Is Good Delivery Gold Bar
A Good Delivery gold bar is one of the largest gold bars you’ll find. They’re usually sold in multiples of 25 troy ounces. These bars come straight from the minting facility and are stamped with the weight, purity, and metal type.
The London Bullion Market Association manages the “London Loco,” or London physical gold market. This is where buyers and sellers meet directly to transact.
There are no exchanges involved. Because there are no middlemen, trust is paramount. To ensure that trust, LBMA requires that all bars offered for sale must pass a rigorous inspection process.
Only those that do qualify can be considered for listing on the LBMA approved list.
Only bars produced by a “Good Delivery”-accredited refinery can be listed on the London physical gold markets. Refiners must undergo a stringent audit process every three months to prove that their facilities are operating within industry standards.
How To Get It
Buying bullion is easy. You just go to a reputable dealer and tell them what you want. As we’ve seen there are many ways to acquire physical gold and silver.
For example, you might buy individual coins or rounds, or you could invest in a large amount of gold bars. Or perhaps you prefer to buy a smaller quantity of coinage and make it easier to carry around.
Whatever form of bullion appeals to you, there are plenty of options out there.
Alternatives
If you don’t want to invest in physical gold or silver, there are plenty of ways to still reap the benefits of owning precious metal investments.
Instead of buying bullion coins or bars, you could choose to invest in exchange traded funds (ETFs).
These funds track the price movements of specific commodities like gold and silver, allowing investors to take advantage of market trends while avoiding the risks associated with physical bullion.
You can buy and sell ETF shares just like you do stocks. This makes them easy to incorporate into your investment strategy.
For instance, you might decide to purchase one ounce of GOLD every month, regardless of whether the price moves up or down.
Or perhaps you’d prefer to put some money toward SLV every quarter, even though the price fluctuates over longer periods of time. In either case, you’ll benefit from the diversification offered by ETFs.
Calculating Value
The actual weight of a bullion coin is listed on the face of the coin itself. This number represents the amount of pure metal contained within the coin. For example, a.999 fine silver American eagle contains 371.25 grains of 99.99% pure silver.
You can calculate the value of the coin by multiplying the actual weight by the fineness. In our example above, we multiply 371.25 by 0.9999. We end up with 371250 troy ounces of pure silver.
This calculation assumes you want to use the spot price of silver today. If you want to use another price, simply change the numbers accordingly.
Numismatic Vs Bullion Coins
There are two types of precious metals coins: bullion coins and numismatic coins. Bullion coins are those that are produced specifically for investment purposes.
As we’ve seen they are usually struck in large quantities and are sold at lower prices. Numismatic coins are those that are meant to be collected for their historical significance. These coins are generally scarce and expensive.
The key differences between the two categories are production quantity and price. Bullion coins are typically produced in much larger numbers than numismatic coins.
This means that there are fewer of each type of coin out there. As a result, bullion coins tend to sell for less money than numismatic coins do.
In addition to being rarer, numismatic coins often command a premium over bullion coins. Because of this, many collectors prefer buying numismatics rather than bullion coins.
However, there are exceptions. There are times when bullion coins become very popular, making them desirable investments.
The most common reason given for collecting rare coins is to diversify one’s portfolio. But there’s a problem with this reasoning: Rare coins are very expensive compared to bullion coins, bars and rounds.
In fact, rare coins are so much more expensive than bullion that you’re better off just keeping your money in cash.
That’s because transaction costs and premiums are dramatically higher for rare coins than for bullion, bars and rounds. This makes rare coins less attractive investments, even though they are often marketed as such.
Rare coins are also highly illiquid. They require extensive research and expertise to value properly. In addition, many of them are subject to buy-backs. These factors combine to make rare coins far riskier than investing in bullion.
There’s another factor that makes rare coins particularly risky: governments don’t respect ownership of rare coins. If you try to sell your rare coins to a dealer, he’ll probably turn around and sell them to the government.
And the government doesn’t care about your collection.
This is why we’ve left the rare coin market to others. We believe that consumers deserve a safe place to store their wealth without fear of losing it to government seizure.
Deciding Which Investment Is Best
How do you choose exactly which round, bar or bullion coin to invest in?
If you avoid paying way too much for numismatic coins and stick with popular bullion products, your investment will allow you to capture essentially all of the gains that can be obtained in the gold and silver market.
That said, we believe that you can best secure those returns by acquiring as many ounces as possible now and letting those ounces do the work for you.
Conclusion
Gold and precious metals are considered one of the safest forms of investment. They are also very popular because they do well during economic downturns.
Whether you want to invest for retirement, diversify your portfolio, or just make sure that your savings are protected, buying precious metals is a good idea. But it does take a little knowledge to figure out how to buy the best product for your needs.
Investing in Bullion can be very profitable and with the right research and it could provide a secure method of saving for the future.
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