Definition and Examples of Bullion
Bullion is a physical precious metal that is pure or nearly pure after being refined.
Coins and bars of precious metals such as gold, silver, platinum, and palladium are considered bullion. Bullion “rounds” are coins made of precious metals that are not intended to serve as currency, like gold or silver coins.
Jewelry plated in a precious metal isn’t considered bullion because it is not pure.
Physical bullion can be purchased by individual investors directly from precious metals dealers online or in person. For example, you can buy gold bullion bars weighing from 1 ounce to 1 kilogram with 99.5% to 99.9% purity through Fidelity.
Investors can also get exposure to bullion through financial instruments such as silver- or gold-backed exchange-traded funds (ETFs) or futures contracts.
How Does Bullion Work?
Because precious metals have a limited supply and tend to rise in value over the long term, they attract investors. These assets can help add diversity to a portfolio and provide a way to hedge against currency risks, inflation risks, and geopolitical risks. Historically, precious metals have performed well during times of uncertainty.
Bullion is usually stamped with its weight and the percentage of its pure precious metals content, or purity, so investors can determine its worth.
Many government central banks regularly buy gold bullion to hold in reserve. In fact, the U.S. government holds about 8,133 metric tons (78% of its total reserves) in various Federal Reserve vaults.
How To Get Bullion
If you want to buy physical bullion, you can simply buy, for example, coins or rounds through a local online dealer who can deliver the bullion to you or perhaps store it in a vault for a fee.
Individual investors can also buy gold bars of various sizes. The most common way to purchase gold bars is to buy them from an online dealer who holds them in a vault. The dealer makes an accounting entry to show your investment, and you usually do not own a specific gold bar.
When you buy through any dealer, research them thoroughly, because the precious metals industry does attract scammers. Look for a dealer who is well known and respected, and perhaps is a member of a reputable organization such as the American Numismatic Association. Know the spot price of the metal beforehand as well as all the associated fees and commissions.
Alternatives to Physical Bullion
Some people want to avoid the hassle of finding a reputable dealer and analyzing physical gold options, or they may not want to risk storing it. If you want the benefits of investing in precious metals without investing in physical bullion, you have alternatives to consider in a range of financial products.
One way to easily include bullion in your portfolio is to buy shares of silver or gold ETFs, which are funds that trade on stock exchanges and hold contracts backed by silver or gold as their main assets. You can buy and sell ETFs as easily as you buy and sell stocks.
The SPDR Gold Trust ETF (GLD) and iShares Gold Trust (IAU) are among the largest gold EFTs in the world. The iShares Silver Trust (SLV) is an example of a popular silver-backed ETF.
Shares of precious metals ETFs cannot be redeemed for the bullion held in the account, only the value of the shares.
Another option for getting exposure to precious metals is to buy shares of mining companies (although this investment strategy has less correlation with the price movements of precious metals). You can do this through an ETF such as the Van Eck Gold Miners ETF (GDX) or by researching and buying individual mining companies.
Finally, you can invest in bullion through futures contracts, or options contracts, which give you the right to buy or sell gold at a certain price by a certain time. You can buy these contracts through the Chicago Mercantile Exchange (CME).
- Bullion is the pure form (or nearly pure form) of a precious metal.
- You can purchase bullion through precious metal dealers online or through physical shops and have it delivered or stored for you.
- Investors can also gain exposure to bullion trends by buying shares of precious metals ETFs or futures contracts.