Precious metal bullion is sold in a variety of forms, each of which with specific advantages and disadvantages; these features may make certain forms more appealing to a particular type of investor. The primary difference between the following forms of precious metals products is in terms of premiums. Precious metals are bought and sold based on a moving value known as the spot price that changes based on supply and demand within the market. A premium is the markup imposed by precious metals producers, mints, and dealers that covers costs associated with manufacturing, distribution. Below is an overview of each of these forms of precious metals products as well as a brief discussion of their particular pros and cons.
Coins are a legal tender form of precious metal that meet at least three major criteria. They must contain:
- A particular monetary denomination
- the name of the national government which recognizes their legal tender status
- their year of production.
Premiums for coins are generally higher than those for non-monetary precious metals products because the government mints that produce them usually impose a higher initial premium, meaning that buyers ultimately get less precious metal for their dollar. In spite of this, many investors favor bullion coins because their content is guaranteed by a national government; government-issued bullion coins are also easily recognized and highly trusted, making them more liquid, or more easily bought and sold, than other forms of precious metals products. Coins also have a robust collectible market and some bullion coins may have collectible values that influence their premiums.
Examples: American Silver Eagle Coins
Bars and rounds are precious metal products which are not legal tender. Bars are generally rectangular and made for easy stacking and storage, while rounds are shaped like coins. These products are commonly produced by private mints and often include little more than a simple design and their precious metal content inscribed on the surface. The major benefit of purchasing bars and rounds is that they often command very low premiums over spot price, meaning that investors concerned with buying as much precious metal as per dollar see them as an attractive option. Most bars and rounds are of a high purity and many can be placed within IRAs that accept precious metals. While there are many brands of bars and rounds, name-brand products (such as PAMP Suisse, Credit Suisse, Valcambi, etc.) have the same purity as most generic products.
Examples: Silver Rounds
When deciding whether to buy coins, bars, or rounds, you should keep your investment goals in mind. Ultimately, buy what appeals most to you.
- Bullion: A highly pure form of gold, silver, or platinum that is used as a commodity or investment product.
- Premium: The markup above the spot price for a coin or bullion product that represents the costs of manufacture and distribution.
- Spot Price: The current market price at a given time and place for a commodity.
- Legal Tender: Currency; redeemable for commercial transactions and satisfying debts.
- Bars: An ingot of precious metal, usually rectangular.
- Round: A circular piece of gold or silver bullion that is not a legal tender coin; sometimes, a medal.