Most people will have heard the term ‘bullion’ in association with investing in gold or silver. Gold dealers regularly buy and sell bullion alongside gold and silver coins, medallions and bars. It can be an excellent part of a wider precious metals investment portfolio. This is due to its attractive appearance and liquidity, or ease of resale.
Governments and banks tend to store bullion as a reserve due to its high value. It is often used to settle international debts or for lending in order to stimulate the economy. Gold and silver bullion can also be used by investors to hedge against inflation risks and diversify a mixed portfolio.
So, what exactly is bullion?
Bullion can be either gold or silver – the key element is that it must be officially recognised as being at least 99.5% and 99% pure respectively. Bullion comes in the form of bars, ingots or fractional bullion, among other types. There are no major advantages to owning any of the forms over the others. It often comes down to a matter of personal choice and practical considerations, such as available budget or storage space.
Generally, however, bullion bars offer some of the lowest premiums over spot price and come in a stackable, rectangular shape that is convenient to store. Fractional bullion are bars that can be broken into smaller segments to maximise liquidity. They are a great option for first-time investors finding their feet. However, once the bar has been broken up, it can be harder to keep track of the individual fragments.
How is bullion obtained?
Gold and silver bullion is extracted from the ground by mining companies in a combination of metal and mineralised rock. This is known as gold or silver ore. The gold or silver is carefully extracted with extreme heat or chemicals. After being tested for purity, it is then formed into bars or ingots and can be sold by gold or silver dealers to investors and collectors. Often investing in bullion is more straightforward when done via futures contracts or exchange-traded funds (ETFs).
Who decides its price?
The bullion market is open 24/7 and is primarily an over-the-counter (OTC) market. Trading can involve high volumes and transactions are usually carried out over the phone or electronically. Global bullion markets are located in key commercial centres, including London, New York, Zurich and Tokyo. Bullion’s price is influenced by companies that use gold and silver to make, e.g., jewellery or coins.
Silver and gold bullion is considered a safe investment by many, due to the stable prices it commands. Prices of gold and silver bullion, as well as gold and silver coins, bars and medals, can be tracked via the international stock exchange online. Often, prices increase more radically during times of international or national instability, such as war, terrorism, defaulting on debts by governments and other geopolitical events.
How can individuals invest in physical bullion?
For those interested in investing in bullion, it can be purchased in physical form, with the actual bars or ingots delivered to the investor for storage in their chosen location. Always ensure that bullion is kept in a secure place that is not exposed to high temperatures or moisture. Do not tell lots of people where it is being stored and install a safe with a strong security protocol which is firmly attached to the wall or floor. Alternatively, physical bullion can be stored with a trusted third party, such as a bank or specialist vault.
Choose a trusted, proven silver or gold dealer to manage such transactions to ensure that you receive authentic, high-purity bullion that will represent the best possible return on your investment. It is important to remember that, like similar investments, the price of bullion can rise and fall at different times, so it is essential to keep track of its progress and choose when to buy or sell wisely and with careful planning and research.
Never invest more heavily in silver or gold bullion, or indeed any precious metals than you feel comfortable doing. Gold and silver dealers can advise on this and any other aspects of investing in bullion and help you create a suitable portfolio that reflects your budget, appetite for risk, potential resale expectations and other personal preferences.