In movies and television shows featuring Fort Knox, you’ve seen bricks of gold bullion stacked in safes. Bullion bars aren’t just fictional riches, however.
With volatility in the stock market, many investors are turning toward bullion as a profitable port in the storm. Gold is sold in bullion to guarantee its purity and weight.
This standardization of gold makes international trading possible. It keeps its value across countries and economic systems, making gold an ideal investment anywhere in the world.
You may have questions about what gold bullion is and how you can invest in gold by purchasing gold bars and gold coins.
Continue reading to learn more about bullion and the bullion market.
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What is Bullion?
Unlike pieces of gold jewelry that get their value from design and artistry as well as precious metals, bullion gets its value solely from its gold content.
Gold coins can also be a form of bullion, although people often think of gold bars as bullion. Bullion plays these roles in the world’s economy, piquing the interest of investors who want to buy gold bullion.
Bullion such as gold bars and gold coins as well as bullion of other precious metals are essentially a form of currency. Their legal tender status means that central banks and institutional investors often use bullion reserves to keep their investments secure.
The U.S. Treasury famously holds some of its gold reserves near the Fort Knox army garrison in Kentucky. Until the start of World War I, you could cash in paper money for gold coins around the world, as their worths were tied.
For countries around the world, gold bullion bars are an internationally recognized precious metal asset. In national emergencies, governments have relied on bullion as a financial backstop.
The Bullion Market
The bullion market is where investors trade gold and silver bullion. An over-the-counter market, the bullion market includes bullion purchased for industrial use as well as for a safe investment or hedge against inflation risks.
Owning physical gold bars and coins has less liquidity than other types of gold investments such as gold-backed exchange-traded funds because it involves tangible gold bullions that must be stored and transported safely and insured.
Bullion Bank List
The London Bullion Market Association oversees the physical bullion market of London, which is open 24 hours a day for trading in gold bullion.
Since transactions don’t go through an exchange, trust is essential to LBMA operations. The LBMA enforces a “good delivery” standard for gold bars traded there and in the 12 LBMA market-maker banks.
You must store the gold bullion bars in an LBMA-approved vault to ensure the security and condition of the gold.
The 12 LBMA banks are:
- BNP Paribas
- Credit Suisse
- ICBC Standard Bank
- JP Morgan Chase
- Merrill Lynch
- Morgan Stanley
- TD Bank
- Standard Chartered Bank
Buying Gold Bullion
Investors looking for a hedge against inflation and a solid investment sector can buy bullion in three ways:
Physical bars and coins
Some investors want to hold their gold investments in their hands and buy physical gold coins and gold bars. The best gold bars to buy include those from Pamp Suisse, Royal Canadian Mint, The Perth Mint, Scottsdale Mint, and Valcambi.
You will need to invest in a safe place to store gold in the form of bars and insure it. Physical gold bullion can be more difficult to trade since it is tangible gold coins and gold bars.
Exchange-traded funds (ETFs)
Buying shares of gold ETFs and mutual funds is as easy as opening an investment account online. SPDR Gold Trust (GLD) is the largest of the gold ETFs, with assets over $55 billion and a trading price of $155.69 in August 2022.
ETF trading is easy since shares have high liquidity. Even smaller investors and beginning investors can afford shares of GLD since most online trading platforms offer fractional shares in addition to whole shares.
ETFs don’t let you hold the physical gold you’re investing in, which is a disadvantage for those looking for tangible gold investments.
Another way gold investors can profit from bullion is through futures contracts, allowing them to profit from changes in the price of gold bullion in the future.
In a futures contract, the buyer agrees to take delivery of gold from a seller at a predetermined price and on a certain date.
Most investors buy and sell gold futures contracts before the date, never taking possession of the gold.
Gold Coins vs. Gold Bullion: What’s The Difference?
Gold coins can be bullion, but so can gold bars. If you’re wondering about whether to invest in bullion by purchasing gold coins or gold bars, read on to see which is best for you.
Issued by governments as currency, gold coins have more liquidity as bullion than gold bars. They’re easier to store but may have less purity than a gold bar.
Gold coins are a more expensive way to invest in bullion.
Bigger is better when buying bullion. Gold bars cost less than gold coins of equal weight, which means you can get more bullion for less money.
Disadvantages of buying bullion as gold bars include inconvenience in transport and storage and a decrease in liquidity.
Is Gold Bullion a Good Investment?
The price of gold doesn’t always go up. Known as a hedge against inflation and a way of storing value, gold tends to keep an inherent value even when its price changes.
Gold tends to be more stable than stocks as an investment, which is why it offsets some of the volatility of an investment portfolio.
You can buy bullion online through tax-advantaged vehicles, such as individual retirement accounts (IRA).
While coin dealers can sell you a coin to take home that day, working with a company online will provide advantages and a broader selection of bullion options that a brick-and-mortar store can’t match.
Learn more about the best gold investment companies to buy precious metals from.
You may still have questions about investing in gold bullion. The answers to these frequently asked questions may help.