What is a precious metals bullion and why this term is used often when investors are discussing precious metals? I myself back in the early days didn’t know the meaning of the term bullion. I can imagine there are many folks now that are searching the internet for the exact meaning of that word.
What is a Precious Metals Bullion?
What is a precious metals bullion, and could it be a tool of investment? Precious metals bullion is when a particular precious metal (gold, silver, platinum, palladium) has been refined to such a degree that it is now in its purest form.
The term bullion applies only to certain metals. These metals are gold, silver, platinum, and palladium. These metals are also known as precious metals. In addition, ruthenium, rhodium, iridium, osmium are also considered precious metals but they are not used for investment purposes in any way.
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 term bullion is used to describe precious metal bars, coins, and ingots. We should not consider bullion only large bars as many people do. In particular, all precious metal bars from 1gram to 1 kilo and even more are considered bullion as long as they meet the purity standards set by the authorities. In addition, precious metal coins are also considered to be 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. The purity levels differ between precious metals.
Bullion Features
-Precious metals bullion is gold, silver, platinum, and palladium in their purest form often kept in the form of coins, bars, or ingots
-Precious metals bullion is not only an asset, in many cases, but it has also been considered to be a legal tender
-Central Banks and other large institutional investors hold large amounts of precious metals bullion, especially gold bullion
-Investors small and large can have access to precious metals bullion through specific dealers.
-Investors can also put money in precious metals bullion through exchange-traded funds (ETFs) or futures contracts
Why Central Banks Hold Precious Metals Bullion
It is no secret central banks hold a large percentage of the precious metals bullion bars and coins mined. Central banks hold precious metals bullion for many reasons. The main reason they do that is to protect their portfolios from inflation, a stock market collapse, and an economic crisis. In addition, they use precious metals bullion to deal with international debt and to stimulate the economy through gold lending.
Furthermore, central banks sell and lend precious metals to other banks and mining companies. Precious metal bullion is a useful tool in the hands of the central banks.
The most popular asset central banks like to hold is gold, followed by silver.
Why Investors Buy Precious Metals Bullion
1-Portfolio diversification
2-Safeguard their savings during difficult times
3-Precious metals are a hedge against inflation
4-Protect their savings from geopolitical uncertainty (war, economic sanctions, and so on)
5-Currency risks (weak dollar)
6-Political instability
7-Precious metals are a non-correlated asset (their price tends to rise during a market downturn)
How the Price of Precious Metals is Influenced
The price of precious metals is influenced, by demand from companies who use precious metals in the industry, in jewelry, and even in medicine, and by perceptions of the overall economy. For example, political, or financial instability, affects the price of precious metals.
Bullion Bars or Bullion Coins?
Before you decide whether you will be better off investing in bars or coins, you will have to decide which precious metal(s) would be the best option for you to purchase.
When it comes to precious metals investing, gold is the number one favored by central banks, governments, large institutions, and investors. Silver is coming second, a good choice indeed. Platinum and palladium might be a good choice but extra care should be taken as they can be too unstable.
After you decide which precious metal you want to purchase you might find yourself wondering what would be better bullion bars or bullion coins? I am in favor of bullion coins as they are easier to store and sell than bars.
However, bullion bars are still an excellent way to invest in precious metals. Keep in mind, 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.
Investing in Precious Metals Bullion
There are many ways an investor can purchase precious metals bullion. This can be done in physical form, by buying physical gold, silver, platinum, and palladium. I prefer investing in physical form as the best way to own precious metals.
Another way for the investor to get access to the bullion market is through exchange-traded funds. (ETFs) Precious metals ETFs are securities that track the precious metals market. Precious metals ETFs are a hustle-free way to own the precious metal you happen to desire and it can be done via a regular broker or an IRA broker.
The futures market is another vehicle 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 believe the futures market is a good idea.
Using the futures market to invest requires certain skills and expertise. A futures contract that does well will lead you to extremely high gains. If things do not work out you could find yourself facing bankruptcy.
The mining companies could also be a tool for someone to invest in precious metals. All you have to do is to purchase shares. A gold mining company’s shares could see a substantial price increase when the price of the yellow metal picks up.
You will have to be extra careful when selecting which mining company to invest in. It could be a good idea not to rely only on one mining company, you want to minimize your risk. Remember, mining companies are private enterprises and the companies could be subject to nationalization, fraud, mismanagement, and so on.
Final Words
Precious metals bullion is a popular investment asset. Institutional investors, central banks, and smaller investors are including precious metals in their investment portfolios for their own reasons.
Gold is the most popular precious metal and rightly so. Silver is coming next with the Platinum following in the third position and Palladium last.
There are several ways to invest in precious metals bullion. In my opinion, investing in physical form is the best way to do that. Nevertheless, gold ETFs are a good option too. The mining companies could be risky and the futures options are something I do not recommend unless you are familiar with the way futures work and know the risks involved.