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Gold Bullion: A Complete Guide

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If you are looking into the bullion trade as a possible way to plan for retirement, it can be an intimidating industry to understand. There are many different ways of investing and precious metals you could trade. The most popular are gold and silver bullion. If you are wondering if investing in bullion is right for you, we will walk you through the ins and outs of gold bullion. If you want to have a portion of your assets in Bullion, it is essential to know how they work, the differences between each kind, and how banks sell and lend bullion. Read on to learn more!

What Is Gold and Silver Bullion?

Bullion is defined as gold and silver bars or coins that possess at least 99.5% purity; silver and gold bullion bars are a form of gold often kept by various national banks and governments as a reserve asset.

Precious metals bullion is created by extracting mined gold from ore and other minerals under extreme heat. Bullion is classified as parted bullion when free from other impurities. Bullion that contains other types of metal is unparted.

How Does Bullion Work?

Precious metals can be used to counteract the inflationary effects on investment portfolios. The value of money can go up and down with inflation, yet pure gold is always valuable. Investors have been investing in the gold exchange for centuries, as the price of gold is worth its value in peace of mind.

Banks lend money to bullion banks at a 1% interest rate, earning additional value via the exchange. Bullion banks are explicitly designed to participate in the precious metals industry, performing tasks including

  • Clearing
  • Hedging
  • Traded funds
  • Risk management
  • Vaulting
  • Acting as liaisons between lenders and borrowers

Most, if not all, bullion banks are members of the London Bullion Market Association (LBMA). The organization has 76 members in 23 different countries. Banks that have a partnership with the LBMA include:

  • Australia & New Zealand Banking Group
  • Bank Julius Baer
  • Bank of America
  • Bank of China
  • Bank of Montreal
  • BNP Paribas
  • Canadian Imperial Bank of Commerce
  • China Construction Banking Corporation
  • Citibank
  • Commonwealth Bank of Australia
  • Goldman Sachs International
  • HSBC
  • JP Morgan Chase Bank
  • National Australia Bank Limited
  • Natixis London Branch
  • Royal Bank of Canada Limited
  • Toronto-Dominion Bank
  • UBS Switzerland AG
  • Westpac Banking Corporation

These banks all around the world are experts in the world of bullion trading. No matter where you are, you can start investing in bullion with trustworthy people.

Differences Between Gold Coins and Bullion Coins

The difference between gold coins and bullion comes down to purity. While gold, as a general term, covers all forms of metal within the market, bullion isn’t necessarily gold. It can include other precious metals in their purest form, like silver and platinum.

While gold is considered a safe investment, bullion is the safest investment. The highest form of precious metal available is purchased from a vetted and secure institution. Gold coins, alternatively, are only as valuable as the percentage of pure gold they possess.

CountryCoin NameWeight (Troy Ounces)Purity (Fineness)
USAAmerican Gold Eagle (1 oz)191.67% (22K)
USAAmerican Gold Eagle (1/2 oz)1/291.67% (22K)
USAAmerican Gold Eagle (1/4 oz)1/491.67% (22K)
USAAmerican Gold Eagle (1/10 oz)1/1091.67% (22K)
USAAmerican Gold Buffalo (1 oz)199.99% (24K)
CanadaCanadian Gold Maple Leaf (1 oz)199.99% (24K)
CanadaCanadian Gold Maple Leaf (1/2 oz)1/299.99% (24K)
CanadaCanadian Gold Maple Leaf (1/4 oz)1/499.99% (24K)
CanadaCanadian Gold Maple Leaf (1/10 oz)1/1099.99% (24K)
CanadaCanadian Gold Maple Leaf (1/20 oz)1/2099.99% (24K)
South AfricaSouth African Krugerrand (1 oz)191.67% (22K)
United KingdomBritish Gold Britannia (1 oz)199.99% (24K)
AustraliaAustralian Gold Kangaroo/Nugget (1 oz)199.99% (24K)
AustriaAustrian Gold Philharmonic (1 oz)199.99% (24K)
ChinaChinese Gold Panda (various sizes)Varies99.99% (24K)

How Do Banks Sell and Lend Bullion?

When banks lend out bullion to bullion banks, they receive the cash equivalent of the bullion they lent out. The money they receive can then be lent out with Gold Forward Offered Rates (GFOR) applied – these rates are published to the LBMA daily. The bullion banks, possessing the bank’s gold, can either sell the bullion or lend it to mining companies.

Another place bullion banks can sell and trade lent bullion is the spot market. Bullion banks can sell, buy, and trade bullion and other rare items in a spot market. If bullion is sold, bullion banks receive the bullion’s prevailing market value in cash.

A bullion bank’s goal is to buy back its gold at a lower rate than it sold it for, then offer it back to the bank that initially lent it to them.

When bullion banks lend gold to a mining company, it is with the purchase of funding a larger company project. Mining companies rely on bullion banks when they have pre-sold gold that has yet to be mined, only to have customers needing a physical delivery before the excavation. Mining companies, in turn, repay the gold lent from bullion banks with the fruits of future mining operations.

The Ins and Outs of Bullion Prices

With over 20 countries worldwide a part of the LBMA, the bullion market is open 24 hours a day. Trade volume is high, and most transactions are completed by phone or electronically.

The main factor driving the price of bullion is the demand of jewelry companies, car manufacturers, and technology manufacturers. Each industry relies on many types of precious metals to create its products. Not only does this mean that bullion consistently has a high value, but it also means that bullion’s value is also higher during times of economic crisis and bank instability.

Though gold demand often outweighs silver, both forms of bullion are considered safe investments. Because these investments are so safe, socio-political events like war and terrorism can also drive up the price of bullion. Fear of financial collapse also increases the demand for gold bullion. While on a smaller scale, such as the consistent market for jewelry and cars, and smartphones, drive the market for bullion, bullion value is also driven by a larger socioeconomic scale.

Because other stocks and bonds lose return value in times of inflation, investors also rely on the consistent value of gold to compensate for any losses they experience from their other investments. This can make bullion a safer and preferable choice for investors.

Investing in the Bullion Market

Interested in the safe-haven stability of investing in bullion? There are several different paths to put money into the bullion market. However, like any investment, some risk is involved in receiving a reward, as even bullion prices fluctuate. It’s essential to pay attention to these types of investments when looking to invest in bullion:

Physical Form

Bullion can be obtained in either its physical form or through a paper contract. Once purchased through a reputable dealer, bullion can be kept in a safe-deposit box in-home or protected by a bank or third-party depository.

Once purchased, you retain full legal ownership of the bullion. Should a bank or third-party depository fail, they would have no claim over your bullion, as it belongs to you, not the bank or depository.

Exchange-Traded Funds (ETFs)

A more accessible entry to the bullion market is purchasing exchange-traded funds, though this is not the same as owning gold. With ETFs, investors can garner the asset of gold or silver certificates, though they do not own the precious metal.

Similar to equities, ETFs are bought and sold via a broker. With their lower fees, ETFs make access to the gold market more readily available to a larger group of investors. This can often be the best way to enter bullion trading.

Futures Contracts

This type of investment allows an investor to buy or sell an asset, such as bullion, at the current market price at a future date set at the time of the agreement.

Under such an agreement, the seller commits to delivering the commodity, in this case, bullion, to the buyer at the expiration date. The buyer does not own the gold until the date arrives, merely a contract that states they will own the commodity at that future date.

If the buyer does not wish to own the commodity, they can sell their contract before the expiration date or roll it over into a new one.

Future contracts are best suited for the most experienced of investors, as the value of the contracts can be around $100,000 per contract, and the value of bullion can go up and down with the changing market.


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