What Is Gold Bullion?

Gold bullion is a term that refers to physical gold of high purity in bulk form before it’s turned into jewelry or any other object. It’s most often bought and sold in the shape of bars, ingots (blocks), or coins.

Although it's not issued by a government institution such as the Department of Treasury or the Central Bank, a lot of people would argue it’s a form of currency. In fact, most governments hold a large amount of gold reserves in vaults as a monetary asset.

Gold Bullion Explained

The word “bullion” derives from the name of Claude De Bullion. He was the French Minister of Finance under the reign of Louis XIII from 1632 to 1640. Bullion was defined as gold bars, silver bars, and other precious metals commonly used for trading in the marketplace.

Before the existence of traditional forms of legal tender, trading was essential for anyone who wanted to specialize in a chosen field and still obtain other goods and services they needed. People often traded salt, pearls, and livestock, but over time precious metals became the most marketable.

Forms of gold and silver bullion became the forefront of the trading industry because of their versatility and timeless qualities. Gold eventually became the most popular and marketable material as it came to symbolize status and wealth.

Today, you can find sealed gold bullion in a variety of sizes from 1 gram to a kilogram or 1 to 100 Troy-ouncegold bars. The 1 Troy oz bar is the most common size and most commonly traded gold bar around the world.

The giant 400 Troy ouncesGood Delivery bar is the “gold standard” among institutions in the gold market. Gold contracts on the bullion market may call for 100 -ounce gold bars, kilobars, or even the 4000-ounce form of bars.

How Is Physical Bullion Created?

Manufacturing gold bullion bars is a complex process that has evolved over the years. In the past, hydraulic mining (high-pressure water jets) was used to move and separate a form of gold from deposits. Nowadays, pure gold is typically mined from the ground using explosives and other techniques.

These are the four most common ways to mine precious metals from the earth:

• Placer: This method is typical for amateur miners and makes use of metal detection, dredging, panning, cradling, and sluicing. A combination of water and gravity segregates the metal from other materials.
• Hard rock: Most mines worldwide use this technique, which uses open wells or underground tunnels to retrieve gold from rocks.
• By-product: This technique is similar to hard rock mining, except gold is not the target. The primary goal is to mine another element, such as copper or gravel, but sizable quantities of pure gold are an extra bonus.
• Ore processing: Most miners avoid this method because it’s relatively expensive, the yield is low, and it is bad for the environment. It’s a chemical process where workers use cyanide and crush rocks that contain small amounts of gold.

After the gold is mined, it has to be extracted from the rock deposit through a process that involves crushing the sediment to the size of a grain of sand. Then, a chemical solution is applied to the ore in a process called “leaching,” where the mixture is heated to 1600 degrees celsius in a smelter. The gold sinks to the bottom because it’s a heavier element and is removed from the “slag.”

The gold is then sent for refining to remove the impurities that remain after smelting. Next, the purified metal is sent to be poured and pressed into high-quality gold bars known as gold bullion.

What Is Pure Bullion?

Pure gold bullion should be at least 99.5% pure. Measuring the gold content vs. other metal content should be of high interest to buyers to confirm its authenticity prior to purchasing or trading.

Fine gold is a label for gold that is almost pure, as 100% pure gold is virtually impossible to achieve. Its purity can be assessed using a variety of scales, the two most prominent being millesimal fineness or caratage.

The fineness of gold is expressed in units of parts per 1000 of pure metal in the alloy according to its mass. A fine gold piece made of 99.9 percent gold would be labeled 999 or .999, as the fineness is generally rounded to a three-digit number.

The caratage of gold bullion measures the parts per 24, so it would be labeled a little differently. 18-carat gold contains 18/24 or 75% gold and 25% other metals such as copper or silver. A 24-carat gold bar is considered pure bullion.

Can You Purchase Gold Bullion?

Yes, you can certainly purchase gold bullion. However, like similar items, there is always a risk for loss since bullion prices can fluctuate.

That being said, financial analysts usually recommend gold during times of international conflict or economic instability. Although it doesn’t produce cash flow, it can be a way to store value as the commodity can be a suitable counterpoint to traditional stocks and bonds.

How and Why Do Gold Bullion Values Change

The value of gold bullion fluctuates according to market demand.

High demand can be driven by several factors, such as rising inflation, hikes in interest rates, or the possibility of a recession. Gold has a track record of providing financial stability and security as other portfolio diversifiers fail short.

Inflation and Bullion Prices

Gold is often considered a good hedge against inflation because of its inherent stability as a store of value.

As inflation rates begin to rise, the value of the U.S. dollar goes down. Since the value of gold stays steady, it requires more dollars per ounce to purchase. Interested parties can preserve their total wealth by converting their cash into gold bars.

Market Demand

Trade volume in the bullion market tends to be high. The price of gold bullion can be influenced by demand from businesses that use gold to make jewelry or other products.

Banks and buyers also drive the demand for gold bullion during tough economic times. To avoid catastrophic losses, gold is often used as a safe-haven value holder for their assets.

There are various bullion markets across the globe, including London, New York, and Tokyo. If a country experiences war, terrorism, or other financial issues, it can lead to an increased demand for gold bullion.

Gold Spot Price vs. Numismatic Value: Determining Market Value

The spot price refers to the current price in the marketplace in which gold bullion can be bought or sold on the spot. While the spot price is specific to the current time and place, it tends to be fairly uniform worldwide.

The numismatic value refers to the external value above and beyond the face value of the precious metal. Numismatic coins may have more value because they are one-of-a-kind, historical, or have special markings.

In order to determine the market value of gold bullion, you’ll need to find out the market price per troy ounce. You’ll need to convert the weight of the gold from grams to ounces and multiply it by the fineness to obtain the net weight. Then you can multiply that by the spot price to find the market value.

How Do You Purchase Bullion Products?

• Gold Bars: Pure gold bars are a primary means of purchasing bullion.
• Gold Bullion Coins: You can get bullion when you buy gold coins such as the American Gold Eagle or gold Krugerrand.
• ETFs: An exchange trade fund, also known as an ETF, can be a means of owning a share of bullion.

Where To Source Precious Metals and Numismatic Coins

The U.S. Mint produces numismatic and precious metal coins for collectors. All proofs or uncirculated coins from the Mint should include a Certificate of Authenticity.

When searching to buy gold bullion products, you need a coin dealer you can rely on. As an NGC Authorized Dealer, you can trust the collection at Bullion Shark will be of the finest quality.

Source:

Understanding Today's Gold Market | Forbes

Bullion: What It Is, How It's Used, and Ways To Invest in It | Investopedia

France - Louis XIII | Britannica

Exchange Traded Funds: What Are ETFs? | Forbes

FAQ

What is gold bullion?

Gold bullion refers to pure or nearly pure gold that is formed into bars, coins, or ingots. It is valued by its mass and purity rather than its face value as currency. Gold bullion is a popular investment choice for those looking to preserve wealth or hedge against inflation, as it tends to retain value over time.

How do you invest in gold bullion?

Investing in gold bullion can be done by purchasing physical gold in the form of bars or coins from reputable dealers, banks, or precious metals firms. Investors can also invest in gold bullion through gold-backed exchange-traded funds (ETFs), which hold gold bullion as their underlying asset, or through gold futures contracts for more speculative investments.

What are the benefits of owning gold bullion?

The benefits of owning gold bullion include diversification of investment portfolios, protection against inflation and currency devaluation, and holding a tangible asset with intrinsic value. Gold bullion has historically maintained its value over the long term, making it a stable investment during times of economic uncertainty.

How is the price of gold bullion determined?

The price of gold bullion is determined by the global gold market, influenced by factors such as supply and demand, interest rates, geopolitical stability, and the value of the U.S. dollar. Gold prices are typically quoted per ounce and can fluctuate throughout the trading day.

What is the difference between gold bullion coins and gold bullion bars?

The difference between gold bullion coins and gold bullion bars lies in their form and the market they primarily cater to. Gold bullion coins are produced by government mints, have a legal tender value (though their market value is much higher), and are preferred by collectors and small-scale investors. Gold bullion bars, on the other hand, are produced by both government and private mints, come in various sizes, and are typically favored by large-scale investors due to their lower premiums over the spot price of gold.

How do you store gold bullion safely?

Storing gold bullion safely can be done through a home safe, a bank safe deposit box, or through third-party storage services specializing in precious metals. The choice depends on the amount of gold, personal security preferences, and whether the investor wants direct access to their gold. Insurance is also recommended to protect against potential loss or theft.

What are the tax implications of buying and selling gold bullion?

The tax implications of buying and selling gold bullion vary by country. In many jurisdictions, profits from the sale of gold bullion are subject to capital gains tax. Investors are advised to consult with a tax professional to understand the specific tax regulations and obligations related to gold bullion investments in their country.