Gold bullion refers to gold that’s been refined and sold in different shapes like gold bars, blocks and coins.
It comes from the old French term ‘boiling’, meaning to boil, in reference to the melting house where the metal was refined.
To make gold bullion, manufacturers and minters will always use new gold. First, miners have to find gold and then extract it from underground. Then it’s refined to remove impurities and then used to make gold bullion.
The value of bullion is also based on the purity of its metal. You’ll often hear people in the industry use percentages of fineness like 99.99% or four nines.
Why buy gold bullion?
There are many reasons to buy gold bullion.
It can be a great hedge against inflation and geopolitical turmoil, and a great store of value. Gold always inspires confidence because it is scarce, tested by time, and has no credit risk. That’s why investors tend to flock to gold during times of uncertainty.
It is also a great way to diversify.
Some of the big buyers of gold bullion are central banks.
Historically, central banks had to keep gold as a reserve when gold was completely intertwined with our monetary system. But even after our monetary system decoupled from gold in 1971, central banks have kept buying gold to hold in their reserves.
Central bankers usually add gold to their reserves to diversify, to provide a hedge against inflation and reduce risks.
They tend to be holders of the Good Delivery gold bar — a 12.4kg chunk of gold that sits as a reserve asset.
Of course, this can be pricey for regular investors.
Buying gold bars
So, you’ve decided to buy some gold bars. Where should you start?
Well, here are some tips.
Today there are plenty of places where you can buy gold bars in either physical stores and online. Just make sure you do your research and that you find a reputable dealer.
Gold bars come in different ranges and sizes: 1 kg, 10 ounces, 1oz, to name a few. It all depends on how much gold you want to buy and how you want to store it.
In general, the smaller amount of gold you buy, the higher the premium over the spot price of gold you will pay.
Gold bars can also come as cast or minted bars. Cast bars are produced by pouring gold into a mould, and they are cheaper, while mint bars are stamped and have a higher finish.
As a side note, apart from gold bars, you can also look at bullion coins, which come in different sizes depending on the gold they hold. These have some great advantages, as they are easy to store and transport. Many are considered legal tender in the country they are produced.
The other decision you’ll need to make is where are you going to keep your gold bars.
Do you want the bullion dealer to store it for you? Do you want to keep it in a safety deposit box?
Many gold dealers provide storage services. Once you have bought your gold, you can choose for the dealer to hold it for you instead of delivering it to your home.
Here you can choose between allocated or unallocated storage.
If you have allocated storage, it means you own a specific bar of gold. You get the serial number of the gold bar now allocated to you. It’s yours; no one can take it or sell it. And you can go and pick it up any time.
Unallocated storage is usually cheaper, and it gives you the right to a certain amount of gold, but you don’t have specific gold assigned to you.
In times of increasing economic uncertainty, such as we are in now, gold bullion can work well to provide a sense of security. It is important to have a physical store of wealth in hand in times of crisis.
Before investing, you should consider carefully the risks involved. If you have any doubt as to the suitability, seek independent financial advice.