Jump to: Definition of Gold Bullion | What is Gold used for? | Gold Bullion Worth | Gold vs Gold Bullion | Physical Gold Bullion | Gold Bullion Investments
Gold is the most cherished of all precious metals. As the popularity of gold bullion products continues to rise, so does interest in gold investments, instigating numerous questions like "What is gold bullion?"
Understanding gold bullion and how bullion investments work is essential for anyone considering this avenue.
To address this growing demand, we have prepared a comprehensive gold bullion guide detailing its applications, pricing trends, and investment options.
KEY TAKEAWAYS:
- Gold is a chemical element from the periodic table, historically valued and used to display wealth. In contrast, gold bullion refers to products like bars and coins typically crafted for trading in the marketplace.
- Bullion products can be stored directly by investors, kept in an IRA, or used in indirect forms of precious metal investments like gold exchange-traded funds (ETFs).
- As of July 2024, the spot price of gold is fluctuating around $2,370 USD.
- Bullion products are often considered legal tender and held as reserves by central banks.
Keep reading to learn more:
Definition of Gold Bullion
Gold is a chemical element in group IB of the periodic table with atomic number 79. Valued since ancient times, gold is a dependable store of value with increasingly high technological, industrial, medicinal, and even aerospace applications.
Do you know how gold is formed? Read our article to find out.
Bullion is a refined piece of precious metal, typically gold, silver, platinum, or palladium, which comes in various forms like coins, bars, ingots, wafers, rounds, dust, grain, or shot. Gold bullion primarily consists of gold bars or gold coins and is composed of at least .995 pure gold. Gold bullion is specifically intended for investment
The London Bullion Market Association (LBMA) establishes the quality standards for gold and silver bars. The minimum acceptable fineness of bullion products in the global bullion market is 99.5% for gold bars and coins and 99.9% for silver bars and coins.
The word 'bullion' comes from Claude De Bullion, the French Minister of Finance under Louis XIII. Although the term bullion does not prevent products like gold and silver bullion from being often attributed with legal tender, they are popularly produced for investment purposes.
For What is Gold Bullion Used?
Typically, long-term owners buy gold bullion bars or coins to hold them as a dependable store of value and universal purchasing power. Because gold is cash equivalent, it can be converted into currency in times of need.
Many private investors also buy gold bullion coins and bars to diversify their investment portfolios. Because of its intrinsic value, gold, like other precious metals, has been used mainly as a safe-haven asset, against inflation and the devaluation of fiat currencies.
National governments, central banks, commercial banks, hedge funds, pension funds, exchange-traded funds, individual investors, and ordinary people worldwide are long-term owners of gold bullion.
In June 2024, the Statista Research Department released data about the gold reserves of the largest gold-holding countries worldwide. As of the fourth quarter of 2023, the United States Central Bank held approximately 8,133.5 metric tons of gold, which is more than twice the gold reserves of Germany and more than three times the gold reserves of Italy and France.
What is Gold Bullion worth?
Gold bullion is almost totally valued by its overall precious metal content and total weight. A 1-kilo gold bullion bar (which contains just over 32.15 troy ounces of .999 fine gold) will cost over 32Xs the price of a typical modern-day government or private mint-issued 1 oz gold bar or a government-issued 1 oz gold bullion coin.
Today's gold bullion prices are mostly measured in financial markets by their reciprocal value in various fiat currencies.
For example, in the United States, we mostly measure the price of gold bullion based on the fluctuating 1 oz gold current price in US dollar terms.
Gold Price Chart per Ounces
In 2024, gold reached another historic record price, with a sudden change seen only during the pandemic. The sharp increase in prices can be attributed to ongoing geopolitical uncertainties. On May 20th of that year, the price of gold surged to an impressive $2,426.33.
As of July 2024, the price of gold per ounce is fluctuating at $2,366.62 USD.
What are the critical differences between Gold and Gold Bullion?
In short, the only difference is their form since gold is the element, and gold bullion is the gold turned into, usually, gold bars or coins to serve mainly as an investment option and with a standard purity level. (usually 99.5% for gold)
Contrary to gold bars, gold coins tend to gain numismatic value (and consequently become more expansive) due to their complex design, manufacturing costs, and the historical significance of commemorative collections. Even though numismatic value plays a significant part in coin prices, both are considered bullion and are affected by the gold spot price.
Of the newly mined and old recycled gold supplies coming to market every year, about half of this physical gold is getting used for fabricating gold bullion bars, coins, and other investment-grade gold bullion products.
Data from 2023 shows that China and Poland are the world's largest and second-largest physical gold buyers, respectively.
Gold Jewelry
Even gold jewelry can have value as bullion investments.
Owning gold jewelry can be a strategic move to diversify your portfolio, even though typical physical gold investors usually focus on bullion. Gold, a corrosion-resistant precious metal, tends to perform well, particularly in bear markets.
Physical gold carries no default risk, is easily purchased, and serves as a reliable hedge against market volatility. The global market for gold jewelry is stable, with significant demand from Eastern countries like China and India, where it holds social and status value.
Regarding purity, 24-karat gold signifies the highest fineness, known as pure gold jewelry. Its malleability allows for customization to suit individual preferences. Gold jewelry incurs additional costs due to design and craftsmanship, akin to premiums on gold coins. Investing in 24-karat gold jewelry ensures acquiring the purest form of gold per dollar spent.
These products are weighed in grams, unlike most bullion, which is measured in troy ounces (1 troy ounce equals approximately 31.1 grams).
What is Physical Gold Bullion?
Common sense would presume that gold bullion is, by definition, physical. Of course, this is indeed the case. When we refer to gold bullion, we are talking about the real thing.
In our highly financialized world, there are many more synthetic financial derivative price bets in existence than there are real physical ounces of gold bullion above ground.
Physical gold bullion is highly liquid, meaning it is easy to sell quickly in virtually any country in the world. Physical gold bullion thinly traded definition there is not a lot of available physical gold bullion to purchase at current prices as most investors will not sell gold bullion allocations unless much higher prices come about.
When you see or hear the explicit term' physical gold bullion,' the writer or speaker is likely making a conscious decision to differentiate actual physical gold bullion vs. other financial derivatives.
Let us explore different ways of gold investment:
Is Gold Bullion a Good Investment?
Unlike most other asset classes, gold requires no counterparty to perform and has the potential to protect your wealth from market volatility. Usually, when the prices of stocks and bonds decline, gold prices tend to rise. This is why it is considered a safe haven.
Buying and owning gold bullion is akin to saving fiat currency in a bank. Yet, these days, many bank balance sheets are non-GAAP and possibly insolvent if genuinely marked to market. Also, savers make very little interest with US dollars in most banks these days, so owning gold bullion is attractive to many.
Plus, many banks have gold reserves because of concerns about the global economy. In a sensible political sentiment like ours today, gold bullion values tend to appreciate. In other words, gold bullion begins to buy more stuff.
Often today, middle-class individual investors pay secure logistics companies and gold depositories to oversee and ensure a portion of their directly owned gold bullion (paying typically 50 to 25 basis points annually).
So long as the United States issues fiat Federal Reserve notes (i.e., fiat currency) as its official monetary issuance, gold bullion values will likely benefit from lessening US dollar values ahead and over the long term.
See below for a brief insight into the most popular ways of investing in gold:
Physical Gold
The bottom line is gold bullion can be in the form of bars, coins, or rounds. Many investors buy gold because it is widely considered a hedge against currency risks, inflation risks, and geopolitical downturns.
Remember that physical gold has expenses like delivery fees, the premium, and storage. On the other hand, it is not related to the financial system.
The Internal Revenue Service (IRS) considers capital gains as the money you make from selling an asset, financial or otherwise. The capital gains tax is much lower than earned income (such as salary pay).
The higher you pay for the profit from selling gold, the higher the 28% rate because the IRS considers physical gold, art, and bullion collectibles, and 28% is the standard for collectibles.
A common way of avoiding the high taxes is investing in gold indirectly:
Individual Retirement Account (IRA)
An interesting form of investing in the yellow metal, besides the direct purchase of physical gold, is to have an IRA. In the precious metal IRAs, you must purchase physical gold or other allowed IRA products, and they should be stored in an IRS-approved depository.
A gold IRA offers comparable tax advantages to a traditional IRA, enabling tax-free interest accumulation until the owner reaches retirement age.
Gold Funds (ETFs/Mutual Funds)
A gold ETF is an investment fund that holds gold assets, such as gold bars or futures contracts and is traded on a stock exchange.
The price of the popular gold ETFs is directly linked to the price of gold, and investors can buy and sell shares of the ETF on the stock exchange just like they would with any other type of stock. If you buy shares of a gold ETF, you are essentially buying a portion of the gold held by the fund.
Gold ETFs provide investors with exposure to gold prices by representing a fixed amount of gold securely stored in a vault managed by the ETF provider, eliminating the need for direct ownership of the physical metal.
Another slight variation is the Gold mining ETFs, which invest in the stocks of gold mining companies. In contrast, gold mining ETFs represent ownership in a portfolio of gold mining companies, with their performance linked to the profitability of gold extraction and refining, as well as general stock market trends.
You do not own any physical gold; instead, it is part of the ETF, representing a certain amount of gold. This can be a valid option for those who are looking for diversification without actually owning physical gold bars or any type of bullion that requires storage safety concerns.
Futures Contracts
In this option, you are the owner of a paper gold contract. It works as an agreement between two parts of buying or selling gold in the future at a previously established value.
While you don't receive the gold, you are not really the owner of the physical gold. You can sell the contract or roll it forward into a new one.
Each gold investment option, as well as how much gold you should purchase, should be evaluated based on your personal goals and risk tolerance.
Final Thoughts
This article aims to educate readers on gold bullion and explore various ways of investing in it. Gold, as a precious metal, can refer to gold ore or a piece of jewelry. The term "gold bullion" usually refers to the precious metal crafted into forms like a gold bar and gold coins, which must be 99.5% to 99.99% pure gold to be traded in bullion markets.
We aim to provide a clear understanding of the different options to consider when buying gold and the gold market demand behind each one. Many experienced investors choose various products to have as much exposure as possible and minimize great losses.
It is important to note that all the information in this article is meant to contribute to your decision-making process.
To learn more about the best practices for buying and selling gold, be sure to pick up our free SD Bullion Guide before you leave.
