Which Bullion Products are Best?
There are 1000’s of various bullion items, brands, and formations (coins, bars, rounds, etc.). How do you decide which is best for your objectives? Here we define various bullion products and how to determine which are best for your bullion buying objectives.
The amounts of bullion coins and bars can be overwhelming to beginning bullion buyers. There are many various bullion coins, bullion rounds, and bullion bars available in this 21st Century Gold Rush. How do you determine which are best for you?
First let us establish some generally accepted industry definitions for bullion coins, bullion rounds, & bullion coins:
Bullion Coins - (n) physical precious metal items struck in a coin shape by a sovereign government mint. Their value is most entirely based on precious melt value with a slight seigniorage premium. They almost always have an enforceable legal tender face value (an exception being Krugerrand coins struck by the South African Mint).
Bullion Rounds - (n) physical precious metal items struck in a flat round shape by private mints and thus have no legal tender value by law. Their value is almost entirely based on the precious melt value alone (with some rare collectible exceptions).
Bullion Bars - (n) physical precious metals manufactured in a bar formation. Their value is almost entirely based on the precious melt value alone (with some rare collectible exceptions). Struck by private mints mostly, there are a few sovereign government mints who also strike ingots (e.g. Royal Canadian Mint bullion bars).
Bullion Product Factors to Consider
- Brand recognition
- Lowest price and premiums over spot
- Legal tender law rights
- Currency crisis insurance
- Lowest counterfeit potential
- Ease to store
Bullion Brand Recognition
For the vast majority of your bullion holdings, you should choose bullion brands and hallmarks which have the highest levels of market recognition and popularity.
FThere are literally thousands of coin dealers in the USA and around the world who buy and sell government guaranteed US Mint bullion coins or futures exchange approved private mint products by Republic Metals for example.
FOwn bullion products that are trusted, easy to buy and sell. Know that the more niche a bullion product is, the higher a chance that future bullion buyers may not offer a fair or reasonable price when you move to sell it. As well, some niche bullion products can and do gain popularity and collectability premiums among smaller discerning bullion collectors. Then again, in order to reap high premiums you typically have to sell in small quantities to other private bullion buyers (this can be time consuming, risky with payment fraud potential, and costly if you use a middleman like eBay).
For beginners, the likely safest start is to simply buy trustworthy government bullion hallmarks with large two way trading volumes. The lone big drawback on buying government guaranteed bullion products is that they tend to have higher premiums than the private bullion market competitor hallmarks or brands.
Lowest Price and Premiums over Spot for Bullion
As a general rule, government bullion products are more pricey than popular private mint bullion bars and rounds. As well, the larger a bullion product is, the lower price per ounce over spot will be its bottom line cost.
The basic laws of supply and demand for bullion are major influences on product premiums and fluctuating prices. Bullion dealers operate businesses and are almost always trying to balance their product inventory, profitability, and grow their market share if possible. Too much bullion inventory without inventory turnover means high financing costs. Too little inventory means vanishing product availability, back-orders, and angry customers. Fluctuations in precious metal spot prices certainly have a large effect on bullion market prices, supply levels, demand levels, etc. All these factors and other impact product premiums and their overall prices.
Every bullion seller incurs costs per transaction. Inputs like time, office overhead, administrative payment processing, shipping costs, etc. For bullion sellers some costs are fixed regardless of the size of the transaction. For example selling 1 oz of gold may have similar transaction costs as a 1000 oz transaction in terms of employees required to efficiently execute the transaction. Thus, tier pricing is a common practice in the bullion industry. This means a small buyer’s premium will tend to be higher on their small volume bullion purchases whereas high volume bullion buyers tend to enjoy slightly lower prices per troy ounce.
In calm bullion markets within the USA, about 80-95% of a silver bullion product’s total price is at the current fluctuating silver spot price. Gold bullion product prices are set at about 95-98% of the current fluctuating gold spot price. Of course there are exceptions to these figures ( e.g. low mintage high priced bullion collectibles, periods of low supply high demand, during financial crisis, etc.).
The following is a good general premium guideline on popular bullion product prices when market are calm.
Typical Price Premiums for Popular Silver & Gold Bullion Items( In calm market conditions ) - Source
You can see that there is typically a significant difference in price premiums between government and private mints. Especially in silver, between bars / rounds / and government issued coins.
For example, the most popular precious metal bullion coins in the world are American Silver and American Gold Eagle coins. The U.S. Mint charges bullion dealers a minimum of $2 USD per ounce over spot for every newly issued 1 oz Silver Eagle coin they sell.
The US Mint charges +3% over the fluctuating gold spot price for each 1 oz Gold Eagle coin they strike and sell to the world’s bullion dealer network. Additional fractional American Gold Eagle coins ranging from ½, ¼, and 1/10 oz are respectively charged an additional 5, 7, and 9% premium per ounce over gold spot by the US Mint.
A private bullion mint like Sunshine Metals Inc. will sell their silver rounds and bullion bars in bulk for likely less than ½ the premium that most government mints sell their government guaranteed bullion products.
During periods of increased buying and selling, bullion dealers typically mark up their overall prices to prevent running out of inventory and to capture increased profits if possible. If a bullion dealer has their prices too high, potential buyers will likely choose to do business with a lower priced dealer.
Conversely if bullion dealer’s prices are too low, they may end up selling out of their inventory as well as potentially not garnering enough profits for the company’s future needs.
Bullion sellers are typically trying to find the price equilibrium or the “sweet spot” where the time required to complete a sale is minimized and that specific seller’s profit is maximized.
Bullion Legal Tender Law Rights
If you are a US citizen it may make sense to buy US Mint bullion coins and even older 90% Silver Coins as they all have legal tender face values. Coins with legal tender values give the holders the lawful right to use them in direct contracts.
For example, you could buy a private business explicitly using legal tender coinage in the bill of sale (the contract). If enforced by a notary public, the bill of sale would most likely be enforceable in a court of law. Of course there are some who foolishly still think or formerly thought they could use this loophole to avoid paying capital gains taxes but that has proven to be problematic.
We simply make this legal tender coin suggestion in the worst case scenario of a currency crisis or hyperinflationary episode where buyers and sellers may not want to transact in volatile fiat currencies as opposed to more historically reliable bullion coinage.
This potential court enforceable legal tender bullion trade for goods or services option may not be legally enforceable if merely using generic privately minted bullion products, non-legal tender coinage, or even government struck and guaranteed bullion bars (w/o legal tender face values).
Bullion as Currency Crisis Insurance
If potential bank and financial system closures lead you to believe you may have to potentially use bullion in direct commerce, you can perhaps buy small silver and gold coins, bars, or rounds and even breakable gold bars if you’d like.
Priced at currently less than $20 USD per ounce (December 2017), almost any 1 oz silver bullion product would likely be a more convenient choice to buy with than perhaps trying to use a much more expensive 10 oz gold bar for instance. Thankfully, now in the bullion industry you can now more easily buy gold in tiny single or multi gram gram bits (as well as small platinum bullion bars) therefore silver is not the sole option for those seeking to own bullion for their potential use in small scale trade.
Bullion with Lowest Counterfeit Potential
A real concern in the bullion industry is protecting buyers from fake products.
If you have ever held a troy ounce of physical precious metal (gold, silver, platinum, palladium) you would realize how dense and heavy it is. Still there are many new difficult to detect (#1) electroplated alloy fakes and (#2) thickly plated tungsten counterfeit gold bars now coming out of China.
Thus bullion mints have recently begun designing counterfeit-proof features for their popular bullion products. For instance both Sunshine Minting Inc. and the Royal Canadian Mint have introduced cutting edge security features on their popular bullion products in recent years.
Be wary of any bullion deals or prices which sound too good to be true. Stay away from Craigslist, unknowing pawn shops, and online exchanges with no trusted bullion dealers associated.
The safest tactic to take is to only buy bullion from trusted, established bullion dealers who source bullion products direct from bullion mints and refiners.
All trusted bullion dealers should also test and verify 100% of any and all the bullion products they buy and sell from secondary market sources.
Bullion Ease to Store
Before you buy bullion, you will want to have an idea on where you might safeguard it.
The denser a precious metal bullion product is the less space it will take to store and hide. Platinum or gold bullion bars are both more valuable and denser than silver bullion bars for instance. Thus platinum or gold bullion bars will take up a fraction of the space required as opposed to silver bullion bar stacks with equivalent purchasing powers.
Bullion bars stack and stow easiest of all in terms of minimal space required. Protective government coin mint cases are also easy to stack and stow although they do take up more space given their typical hard plastic packaging.
What about privacy when buying and selling bullion?
United States bullion buying and selling privacy information is so nuanced and large we had to devote an entire page to it below. Note that you should always consult your tax professional on any and all capital gains or losses resulting from buying and selling your bullion holdings.
In the United States all bullion dealers are mandated to establish anti-money laundering policies (AML) to better track potential money launderers. Any bullion dealer you work with should have AML policies, compliance procedures, and employee training in place.
The following information deals with current bullion buying and selling privacy statues in the USA.