Looking for a good bullion definition? In this article, we’ll take a look what bullion is and how it’s used as an investment tool.
What is Bullion?
The typical image of bullion is of precious metals formed into bars, known as ingots. These ingots are graded on their purity and mass. A “parted bullion”, which is the official designation, consists of ingots that are 99.5% purity; bullion that consists of more than one type of metal is known as an “unparted bullion”.
Gold bars are the predominant form of bullion, with silver and other precious metals (like platinum) also used for investment purposes. The creation of bullion is extracted from gold ore and subsequently shaped into molds for ease of storage and transport. While other base metals (i.e. copper, aluminum) may be defined as bullion by retailers, this is mostly just clever marketing and not a widely-accepted definition for investors.
As a historical note, bullion takes its name from the French Minister of Finance under Louis XIII, Claude de Bullion, who had his vast fortune and holdings being recognized under his namesake in 1621.
Similar to our previous gold bullion definition, bullion coins are precious metals shaped into coins; however, they are not numismatic coins and therefore for not circulated as such. Additionally, bullion coins have an officially recognized purity of 90%, which affects their value among investors. While bullion coins may be stamped with a nominal value, this is more of a symbolic gesture than an intended usage.
Bullion as an Investment Tool
Because of gold being recognized as a symbol of wealth and economic stability, gold bullion is prized by investors for its ability to transcend market fluctuations. Some of these advantages include hedging against currency risks, inflation risks, geopolitical strife and uncertainty, or to diversify an investment portfolio.
In comparison to those who chose to invest in numismatic coins, gold bullion’s price is more stable and can be traded at lower margins. This is because it is traded at the precious metal content. The trading price of gold bullion isn’t subject speculation and arbitrary grading by numismatic hobbyists and overspeculative dealers, who may artificially inflate the perceived value of gold coins. This makes gold bullion an attractive investment.
Gold bullion itself is used for jewelry, electronics, and other products, but investors typically trade on the bullion market. The price of gold bullion is subject to supply and demand, as with any other traded commodity. However, there are special bullion markets (ex. SPDR Gold Shares, London Bullion Market) that cater to its trade specifically.
Gold Bullion as an industry
Gold bullion and its trade comprise a whole distinct industry that involves many
participants, which include:
Because gold bullion needs to be transformed from ore and lode to turn it into a salable commodity, these participants must provide the facilities for extracting it from the earth, refining its purity, melting it into form, assaying the gold, transporting it for storage and accounting, and finally vaulting it to have it put to market. At each stage of this process, the cost of gold bullion is affected.