During my early investment days, I came across the term bullion and I had no idea about the meaning of it. I imagine there are many folks out there in exactly the same position I was during my early days. In this article, my aim is to answer the question of what is a gold bullion and how the markets use it.
What is a Gold Bullion?
What is a gold bullion, and how it can be a tool of investment? Gold bullion is when gold itself has been refined to such a degree that it is now in its purest form.
The word bullion comes from the French Minister of finance Claude de Bullion. The value of the bullion is determined by the value of the precious metal content, which is defined by its purity and mass.
Many people actually confuse gold bullion with large gold bars. In fact, gold bullion can be small golden bars from 1gram to 1 kilo and even more. In addition, gold coins are also considered to be gold bullion.
The specifications of bullion are regulated by market bodies or legislation. In the European Union, the minimum purity for gold bullion is 99,5% for gold bars and 90% for gold coins.
Gold Bullion Characteristics
Gold bullion is gold in its purest form often kept in the form of coins, bars, or ingots
Gold bullion is not just an asset in many cases it has been considered to be a legal tender
Central Banks and other institutional investors hold large amounts of gold bullion
Investors small and large can buy gold bullion through specific dealers
Investors can also put money in gold bullion through exchange-traded funds (ETFs) or futures contracts
Why Central Banks Hold Gold Bullion
It is estimated central banks hold 20% of the gold bars mined. Central banks hold gold bars for a number of reasons. One of them is to protect their portfolios from inflation and a market downturn. In addition, they use gold bullion to settle the international debt or to stimulate the economy through gold lending.
Moreover, central banks sell and lend gold to other banks and mining companies. Gold is a useful tool in the hands of the central banks.
Why Investors Buy Gold Bullion
Portfolio diversification
A hedge against inflation
Geopolitical uncertainty
Currency risks
Political instability
Gold is a non-correlated asset (its price tends to rise during a market downturn)
How the Price of Gold is Determined
The price of gold bullion is influenced, by demand from companies who use gold to make jewelry and other products, and by perceptions of the overall economy. For example, political, or financial instability, affects the price of gold bullion.
Gold Bars or Gold Coins?
When the time comes to invest in physical gold you could find yourself wondering what would be better gold bars or coins? I am in favor of gold bullion coins as they are easier to store and sell rather than bars.
However, gold bullion bars are still an excellent way to invest in gold. Bare in mind, that it could be better to own ten 100 gr bullion bars rather than a 1-kilo bar. It is much easier to sell the ten 100-gr bars rather than the 1-kilo bar.
Ways to Invest in Gold Bullion
There are many ways an investor can obtain gold bullion. This can be done in physical form, (physical gold I recommend) gold coins, bars, or even ingots.
Another way for the investor to get access to the bullion market is through exchange-traded funds. (ETFs) Gold ETFs are securities that track the gold market. Gold ETFs are the easy way to own gold and it can be done through a standard broker or an IRA broker.
The futures market is another way for the investor to enter the bullion market. A futures contract is an agreement to buy or sell a commodity or an asset at a particular price with the agreement ending at a preset date. You can invest in futures through a broker but I do not recommend it. A futures contract might lead you to extremely high gains and it might also lead you to bankruptcy.
Final Words
Gold bullion is a popular investment asset. Institutional investors, central banks, and smaller investors are including gold bullion in their investment portfolios for their own reasons.
Investing in gold and coins is something most people have actually thought about at some point in their lives.
Investing in Gold and Coins
Reasons to invest in gold
People invest in gold for their own reasons. Some do it to preserve their own wealth, there are others who do it to actually increase their wealth, and many managed it in the past with much success. There are many reasons to invest in gold, and in this chapter, I will present them to you.
Unlike paper currency or other assets, gold has a history of holding its value. People like to invest in gold because they see gold as a way to preserve their wealth from generation to generation. In reality, gold is a hedge against inflation. The limited supply of gold combined with the increasing demand in countries such as India and China is another factor that influences the price of gold.
In addition, gold is a hedge against geopolitical uncertainty, and my word our times are troubled times. Furthermore, portfolio diversification along with the weak dollar are two very important reasons for the investor to put his money into gold.
How to invest in gold
In the old days, there was only one way to invest in gold and that was only by acquiring gold itself, mainly in the form of jewelry and gold coins. During the centuries there have been many changes and nowadays, the investor faces a very difficult task, due to the fact that there are many options available. In this post, I intend to inform the investor on the ways he, or she, can actually invest in the safe haven gold.
Direct ownership, in my opinion, is the best way to invest in gold. Why? There is nothing like pure gold in your hands, it is certainly better than money. Its value cannot be changed or controlled by governments and that is the reason for governments to go off the gold standard.
Investing in gold bullion bars?
A gold bar is a quantity of fine metallic gold, that is manufactured by a bar producer meeting the exact standard conditions, such as labeling and record keeping.
Bars are the most traditional way of investing in gold. In many countries, they can be bought directly through banks. Bars are available in various sizes, 12kgr, 1kgr, 100gr, 50gr, 10gr, 1gr, etc.
The standard gold bar held as gold reserves and traded as such by the central banks is the 400-troy-ounce. (12.400 or 438,9 ounces). The 1000gr bar or the kilobar is the most popular bar among investors, and it is used extensively for trading and investment. The premium of these bars when traded, is very low over the spot value of the gold, making it ideal for small transfers between banks and traders.
Nevertheless, the bar’s purity must be at 99.5% (24 karats) at least, whereas there are a number of manufacturers producing bars at 99.9% purity. (24 karats too)
Investing in gold bullion coins?
Bullion coins are coins made out of precious metals with one purpose only, that of investment or store of value, rather than used in day-to-day commerce. Many countries have their own bullion coins such as the British sovereign, produced by the British, the American Eagle series of coins available by the U.S. mint, and many others.
Bullion coins are produced in many different weights. They are usually in fractions of one troy ounce, but some bullion coins are produced in very limited numbers in kilograms or more. Bullion coins are usually available in gold and silver, with a couple of exemptions, (the Krugerrand, and the Swiss Vreneli) which can only be found in gold.
Bullion coins are priced according to their fine weight plus a small premium, based on supply and demand, as opposed to numismatic gold coins, which are priced mainly by supply and demand, based on rarity and condition.
Bullion coins sell, for a premium over the market price of the metal on the commodities exchanges. This premium is due to the underlying demand for bullion coins, their small size, and the costs of manufacture. In addition, the amount of bullion varies depending on the coin’s type, weight, and precious metal.
Other ways of investing in gold
Gold options and futures currently trade on various exchanges around the world and over the counter directly in the private market. They are suited to the sophisticated and experienced, who can speculate on price movements in either direction. The risk is high, and so are the profits and losses too.
The companies that produce the gold themselves as shares in gold mining companies. If the gold prices rise, so will the profits of the gold mining companies, and as a result, the share price will also rise. However, there are certain risks here an investor has to take into account. Mines are commercial enterprises, with problems such as flooding, subsidence, structural failure, mismanagement, negative publicity, nationalization, theft, and corruption. Such factors can lower the share value of mining companies.
Gold exchange-traded Funds (ETFs) are a very interesting way to invest in gold. An E.T.F. is a type of mutual fund, that trades on a stock exchange like an ordinary stock. The E.T.F.’s exact portfolio is fixed in advance and does not change, therefore the E.T.F. holds gold bullion as its own asset. E.T.F. offers a practical way to invest and hold gold.
Investing in gold IRA’s
A gold IRA investment is an individual retirement account, an account that functions the same way as a regular IRA account however, instead of holding paper assets, it holds physical bullion coins or bars.
Gold is the type of investment that can protect you when times are hard, and at the same time will also offer significant gains to your nest egg. Back in 2001, an ounce of gold cost $271,00. Ten years later it reached $1896,00, an increase of almost 700%. During that time, banks and currencies collapsed, and the real estate market collapsed, but gold didn’t. In particular, gold fed from these calamities, was the rediscovered idol, in the time when everything else collapsed, from mortgages, credit default swaps, and derivative products, too complicated to even understand.
As you can see, a standard IRA, an IRA invested totally in stocks bonds and other funds are actually putting your hard-earned money at risk. You are relying on government, weak currencies, economies, and large corporations. Gold and silver can actually safeguard your investment.
Since the 2008 financial crisis, gold IRAs have become very popular. Record gold sales, combined with the appearance of many more, that simplify the transaction, have made investing in an IRA a one-shop stop. The result is robust IRA growth.
Nowadays, it is absolutely necessary for the investor to invest a portion of his/her savings in gold, as the dollar is still weak, there is geopolitical uncertainty, the country’s (US) trade deficit is out of control, and the potential inflationary impact of the Federal Reserve’s, stimulus programs.
How does it work?
It works the same way as a regular IRA account, however, instead of holding paper assets, it holds physical bullion coins or bars.
Investing in gold and coins should not be taken lightly. Do your own research and make sure you invest in gold the right way the way that suits you more.
Choosing the Right Gold Broker
Choosing the right gold broker is always a difficult decision. It doesn’t matter where an investor is prepared to invest, it is absolutely necessary to research and make sure his/her hard-earned money doesn’t go to waste. In order to ensure the above and at the same time maximum earnings, it is important for you to read this page.
Selecting the appropriate broker
Check out the comments regarding the firm, especially the complaints, and see how these complaints were handled. If there is a long list of complaints, then this is a sign to worry about. Also, check the number of years the company operates, you want ten years of solid record. Finally most important is to choose a firm with a commitment to keeping you informed. Keeping you informed now and in the future. If a salesperson gives you short shrift or hits you with a high sales pitch, then this is bad news.
LBMA members
The LBMA (London Bullion Market Association) is the competent authority for the world bullion market, and the Bank of England oversees it. It is imperative for the bullion to be produced by an LBMA-approved refinery. This way, the gold bullion coins or bars meet the standards set by the LBMA. In a few words, you are getting what you’ve paid for.
Direct storage outside the banking system
Storage of bullion should be outside the banking system, this way the possibility of confiscation due to bank bankruptcy (bail-ins), or government confiscation is eliminated. Storage should be direct to the client’s name with no intermediates. This way there is no risk of the investor losing his/her investment, in case the broker goes bankrupt. The investor should be provided with a storage certificate by the independent storage company.
Buyback, shipping, and pickup services
The gold firm should be able to provide the client with several important services that include: a buyback service a pickup service, and a shipping service as many clients would prefer their gold kept at home. At the same time it is important for the dealer to be accessible to its client’s questions and queries, and give answers and solutions promptly.
Vault location
The location of vaults is very important. A vault should be located in a free trade zone to avoid taxes or duties. There are many trade-free zones in the world, and most vaults are located there. (Singapore, Toronto, Switzerland, New York, etc.)
I hope my post on investing in gold and coins has got you covered. If you still have any questions feel free to let me know in the comment section.
US-Dollar Backed Gold. Is it true and how does it work? It is common knowledge that the value of the US dollar influences the price of gold. In particular, we can say that sometimes the under-performance of the US dollar backs up gold.
This is exactly what is been happening for the last few days, right after the Fed wrapped up its 2-day meeting, on Wednesday (15 March 2017), the Federal Funds Rate increased by 25 basis points to 1,00 percent. Along with price stability, the Fed is been targeting an inflation rate of 2,00 percent.
US-Dollar Backed Gold
The Fed’s 2,00 percent inflation rate, is now fast approaching and this is exactly what prompted the Fed chair, Janet Yellen, to raise the rates, for the second time since December 2016. The Fed is pushing for monetary tightening in 2017, with at least three rate increases expected for the year. Due to massive job gains and an increase in the US GDP, the rate hike is expected to continue during 2018.
Although currency traders were expecting a US dollar bump from the rate hike, it went the opposite way, and that was due to the fact, that there are more rate hikes to follow. As a result, the US dollar took a dive to a five-month low.
The most interesting development took place after the rate hike and that was the impact on gold bullion. Gold is a dollar-denominated asset like oil, copper, and others. When the dollar tumbles, the price of gold bullion increases. As a result, gold prices rallied substantially, with strong gains and reversing a short-term bear trend. Gold is now trading at $1,245.24 per troy ounce.
Interest rate increases are bad news for Americans. Every time there is an interest rate hike, homeowners, consumers, and others are subject to higher interest repayments. Even though the interest rate hike was by only 25 basis points, it is estimated it will cost the average American household on interest repayment on credit cards, $17.00. The truth of the matter is, that for every increase in interest rates, there is an increase in home loan repayments, as most home loans are variable and they adjust accordingly.
When interest rates are on the rise consumers should shop around for the best deals.
What is a bullion, and what are its characteristics? How did the term Bullion come out?
What is a Bullion
Bullion is gold bars, silver bars, or other bars, or ingots, of precious metals. The word bullion comes from the French Minister of Finance Claude de Bullion. The value of the bullion is determined by the value of the precious metal content, which is defined by its purity and mass.
The specifications of bullion are regulated by market bodies or legislation. In the European Union, the minimum purity for gold bullion which is treated as investment gold with regard to taxation, is 99.5% for gold bars and 90% for gold coins.
The price of gold bullion is influenced, by demand from companies who use gold to make jewelry and other products, and by perceptions of the overall economy. For example, political, or financial instability, affects the price of gold bullion.
Now, is not the time to abandon precious metal investments. Due to the euphoria caused by Donald Trump’s election victory, many investors are prepared to leave gold, silver, and other precious metal investments for the good old Dow Jones. I personally believe now is not the time to move away from safe-haven investments.
Although, there is a strong demand for gold and silver globally, in the US buying activity for physical bullion has fallen significantly, especially in the wake of Donald Trump’s election victory. On the other side, retail selling has increased.
The two terms of President Obama included the 2008 financial crisis, zero interest rate policy from the Federal Reserve, and the Quantitative Easing from the Europeans. There was plenty of reasons to buy gold. Today they still are, but they are less obvious to the average investor.
Many people who were disappointed by Obama’s policies are now investing in the stock market. Artificially low-interest rates are pushing inflation higher and the US dollar looks decent, compared with other world currencies.
If the dollar continues to get stronger, along with real economic growth and the risk assets continue to outperform, then we should not expect a bullish market for precious metals.
The second path involves price inflation, with a sharp rise to the national debt. There is also a scenario that involves geopolitical uncertainty. In this case, investors will have to hedge themselves against the dollar’s declining purchasing power.
The Bureau of Labor Statistics just reported a massive jump in the Consumer Price Index in four years. There is also a proposal for tax cuts, and we all know tax cuts increase spending and therefore inflation. However, at the same time tax cuts can increase deficit and borrowing, leading to a weaker dollar.
If Donald Trump convinces congress to levy import or border taxes, with a major partner such as Mexico or China, that will also mean higher prices in the US.
At the same time, the only way to address the massive deficit is a substantial devaluation of the US dollar, which is inevitable.
In addition, the President has made it clear to fight the Deep State. The unelected often anonymous bureaucrats, who have a behind the scenes say on how the state is run. The President has many enemies and many of them are some powerful republicans.
On the other side of the Atlantic, there will be some very important political elections, with the anti-European forces gaining ground. If they succeed that will upset the markets.
Furthermore, China is facing great problems as officials are desperately trying to maintain a currency peg, in order to deal with the massive amount of bad loans piled up on Chinese banks.
Conclusion
NOW IS NOT THE TIME TO ABANDON PRECIOUS METAL INVESTMENTS
Millions of people from all over the world are investing in gold bullion coins. So what is gold bullion coins and why people actually put their money there? Bullion coins are coins made out of precious metals with one purpose only, that of investment or store of value, rather than used in day to day commerce. Many countries have their own bullion coins such as the British sovereign, produced by the British, the American Eagle series of coins available by the U.S. mint and many others.
Bullion coins are produced in many different weights. They are usually in fractions of one troy ounce, but some bullion coins are produced in very limited numbers in kilograms or more. Bullion coins are usually available in gold and silver, with a couple of exemptions, (the Krugerrand,and the Swiss Vreneli) which can only be found in gold.
Bullion coins are priced according to their fine weight plus a small premium, based on supply and demand, as opposed to numismatic gold coins, which are priced mainly by supply and demand, based on rarity and condition.
Bullion coins sell, for a premium over the market price of the metal on the commodities exchanges. This premium is due to an underlying demand for bullion coins, their small size, and the costs of manufacture. In addition, the amount of the bullion varies depending on the coin’s type, the weight, and the precious metal.
What is gold bullion bars and why investors put their money there? A gold bar, is a quantity of a fine metallic gold, that is manufactured by a bar producer meeting the exact standard conditions, such as labeling and record keeping.
Bars are the most traditional way of investing in gold. In many countries they can be bought directly through banks. Bars are available in various sizes, 12kgr, 1kgr, 100gr, 50gr, 10gr, 1gr, etc.
The standard gold bar held as gold reserves and traded as such by the central banks, is the 400-troy-ounce. (12.400 or 438,9 ounces). The 1000gr bar or the kilobar, is the most popular bar among investors, and it is used extensively for trading and investment. The premium of these bars when traded, is very low over the spot value of the gold, making it ideal for small transfers between banks and traders.
Nevertheless, bars purity must be 99.5% (24 karats) at least, whereas there is a number of manufacturers producing bars at 99.9% purity.(24 karats too)
