The Basics of Gold Bullion
Many people are interested in owning gold bullion but don’t know enough about it to make an informed decision. It’s a good idea to understand this important area of precious metals before investing in gold on your own. We will address the basic topics and answer some of the common questions people have about gold bullion.
What Is Bullion?
Bullion refers to items that derive their value from their precious metal content, rather than their form. For example, a gold bar is considered bullion. A silver ring is not. The most common forms of bullion are bars and ingots, and coins.
Some esoteric metals, such as rhodium bars, are considered bullion. Despite that, "bullion" is generally understood to mean generic forms of gold, silver, platinum, or palladium.
Much of the value of "white metal" bullion comes from its industrial uses. For example, silver sees widespread use in electronics manufacturing. Platinum and palladium play major roles in catalytic converters for internal combustion engines.
While all three of these metals also see investment demand, it isn't the main source of their value. Gold bullion, in contrast, sees nearly all its value derive from investment demand.
What is Gold Bullion?
Gold bullion refers to high purity physical gold in the form of bars or coins. In the distant past, legal tender gold coins were the preferred way to hold gold. They were easier to sell or trade than gold bars or nuggets. This remained true until famous refiners developed gold bars for the investment market.
Today, sealed gold bullion bars are available in sizes from 1 gram to a kilogram, and 1 to 100 troy oz. Gold "Kilobars" are usually the largest size encountered in the retail investment market.
In the institutional gold market, the giant 400 troy ounce Good Delivery bar is the standard. Gold contracts on the COMEX futures market may call for 100 oz gold bars, kilobars, or 400 oz bars.
Good Delivery gold bar. Image: Wikipedia Commons
What is a "Good Delivery" Gold Bar?
A Good Delivery gold bar is a 400 oz gold bar manufactured by accredited gold refineries for trade in the global bullion market based in London.
The London Bullion Market Association oversees the "loco London" global physical gold market. London is the most important physical gold market in the world, open 24 hours a day.
Since transactions are between principals and don't go through an exchange, trust is paramount. To ensure that trust, the LBMA enforces a "Good Delivery" standard for the large gold bars traded in London. Only 400 oz bars made by a "Good Delivery" accredited refiner can trade on the London physical gold market.
These large gold bars must always remain stored in a LBMA-approved vault, or they lose their Good Delivery status. This chain of oversight gives the market the confidence to trade Good Delivery bars sight-unseen.
Central banks and governments buy London Good Delivery gold bars to add to their gold reserves. Gold wholesalers buy and split up Good Delivery gold bars to sell to jewelers and mints. Your wedding band or small gold bar may have started out as a Good Delivery bullion bar!
What Gold Coins Are Bullion?
Legal tender Gold Standard coins of 90% fine gold or better were commonly held as bullion in the past. These coins have gold content based on the nation's official exchange rate, which makes tracking your investment tricky.
Today, many nations mint pure gold bullion coins based on full troy ounce sizes for investors. The price of these coins depend on the gold spot price, rather than their artistic merit. Gold bullion coins are the the most popular way to buy physical gold for the average investor.
Assorted gold and silver bullion coins
For years, these coins were struck in .999 fine gold. Many governments have now raised the purity of their gold bullion coins to "four nines" .9999 fine gold.
But one of the most popular investment gold bullion coin series—the American Gold Eagle—is .9167 fine (22K). In other words, there is no fixed rule on what purity level is considered ideal for investors.
What is the Difference Between Gold Bullion and Gold?
Gold can refer to anything containing the yellow-colored precious metal. Gold ore straight from the ground, gold flakes in riverbeds, gold jewelry or watches. These are all undeniably gold.
Conversely, gold bullion refers to high-purity gold sold for its known gold content—not its form.
Even gold jewelry as pure as 24K isn't considered bullion, because a good part of its value comes from its form. When tastes in jewelry changes, it is worth less than it was before, even if gold prices are the same.
What is the Cheapest Way to Buy Gold?
There are two major types of physical gold bullion products, and each has its own set of advantages. Gold bullion coins offer several benefits, but are often the most expensive form of gold bullion. Gold bars are less expensive, ounce for ounce, than gold coins, but lose some of their advantages.
Advantages to Buying Gold Coins
Gold bullion coins are issued by national governments as legal tender. The added sense of security that this gives investors means that gold coins have better liquidity than gold bars. Gold coins are also more aesthetically pleasing than gold bars, for the most part.
Advantages to Buying Gold Bars
The most important advantage to buying gold bars is cost. Gold bars cost less, ounce for ounce, than the equal weight of gold coins. Buying large gold bullion bars is the most cost-efficient way to purchase physical gold.
Bigger Is Better When Buying Gold
It’s essential to know that the larger the unit of gold—in any form (including gold coins)—the less that gold product costs, gram for gram. For example, a one troy ounce gold bar or coin will typically have a lower premium than four 1/4 oz coins or 31 bars containing just one gram of the precious metal. This effect is magnified with larger gold bullion bars.
What is Gold Bullion Worth?
This is the $64,000 question. The price of gold bullion is always fluctuating due to various factors in the marketplace. For this reason, the price of gold is on the move literally by the moment. If the markets are open and active, the price of gold bullion right now will most likely be different than by the time you finish reading this article!
Therefore, the gold investor is well advised to keep track of gold bullion prices using the resources of a gold dealer website that has a continuously updated gold price ticker.
Is Gold Bullion a Good Investment?
Many people have the mistaken belief that gold always increases in value. The reality is that gold prices fluctuate with changes in the economy, market demand, or other matters. It can probably be better said that gold is a good hedge against inflation and store of value, rather than labeling it as an “investment” in the purest sense. While gold prices may go up or down, gold's inherent value tends to be far more stable than the general economy.
Owning actual physical gold can help protect from the harmful effects of inflation and rapid marketplace changes. When included as part of a diverse investment portfolio, it can help soften the blow of adverse movement in other markets.
Online bullion dealers are open 24 hours a day, allowing investors to purchase physical gold bars and coins at their leisure. Brick and mortar coin shops let you take home your purchase the same day, but only offer a fraction of the products of a large bullion dealer. Weigh the value of selection and convenience when deciding where to purchase your bullion.
Gold bullion in the form of bars and coins
How Much Gold Can You Own?
While the United States government imposed limits on gold ownership during the mid-20th century, these restrictions were lifted in the 1970s. You can now own as much gold as you wish in any form you desire.
Beware of any propaganda or other rhetoric you may run across suggesting the United States government is about to impose more restrictions on gold ownership—or confiscate citizens' gold. These claims are rooted in fearmongering and are meant to cause panic—often with the primary or secondary intention of persuading people to vote for or against specific political candidates.
At the time of this writing, there is no official attempt to ban or restrict gold ownership or impose other wholesale bullion limits in the United States. Given the backlash that occurred the last time gold restrictions were enforced decades ago, it’s doubtful such a measure would ever be enacted in the United States again.
Joshua McMorrow-Hernandez is a journalist, editor, and blogger who has won multiple awards from the Numismatic Literary Guild. He has also authored numerous books, including works profiling the history of the United States Mint and United States coinage.
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