Gold and silver bullion are physical assets that help investors preserve wealth while hedging against inflation.
This guide looks at why bullion is valuable, how to purchase gold and silver bullion, and what you should consider before adding bullion to your portfolio.
What is Bullion?
Bullion is a physical asset like gold and silver. It is measured by weight and valued by purity.
Bullion is minted into coins or bars for investors and collectors. Prices are determined by supply and demand and can be affected by geopolitical events, like a recession.
Bullion is a universally accepted currency and historically it was the cornerstone of trade. It is held in reserve by central banks as a way to provide financial security and access liquidity during market volatility.
Why is silver and gold bullion valuable?
Silver and gold have intrinsic value and are used in modern technology as both metals are good conductors.
Gold is used in consumer electronics while silver is a key component in solar panels. For example, a smartphone contains around 0.034 grams of gold and 0.34 grams of silver.
Precious metals also preserve purchasing power, making them a good hedge against inflation. An ounce of gold in 1980 was worth $614.75 while that same ounce of gold is worth $2,387.24 today.
Compare that to a U.S. dollar. If you took a U.S. dollar from the 1980s and purchased a Big Mac, it would cost you $1.60.
Today a Big Mac costs $5.29. While gold has increased in value by 288%, the value of the U.S. dollar has declined by 74%.
Gold and silver are sought after investments because there’s limited supply. As demand for precious metals increases, but the supply of those metals does not, it increases their value.
During political or economic uncertainty, gold and silver are considered safe investments, increasing demand.
Types of Bullion
The most common way to invest in bullion is by purchasing a physical coin or bar and storing it in a safe or vault at a secure depository.
Bullion is sold in different forms and is assessed based on purity and weight.
- Coins: coins are issued by mints and bear artistic as well as numismatic value. Some popular coins include the South African Krugerrand, the American Gold Eagle, and the Canadian Maple Leaf.
- Bars: bars come in a variety of sizes and are ideal for investors who want to maximize weight and purity over collectability. Examples of bars include the PAMP Suisse, Valcambi, and Johnson Matthey.
Fractional coins are also offered in smaller weights to make gold investing more affordable. Silver is a more accessible form of bullion investing than gold due to its lower price.
How Invest in Silver or Gold Bullion
Gold and silver is accessible to investors but requires some thoughtful planning before you begin.
Here are the steps you should follow to invest in silver or gold bullion:
- Learn about bullion investing. Assess your goals and understand the risks. Market volatility, storage fees, and liquidity are some things to consider when investing in bullion.
- Research reputable dealers to compare pricing and storage options. Dealers may charge a premium for some types of bullion and may require annual account maintenance fees.
- Determine how you want to store your bullion. Gold and silver stored in tax-advantaged retirement accounts must be stored at IRS-compliant depositories.
- Choose products to invest in. Depending on your personal investment goals, determine how much you want to invest and whether you want to invest in coins or bars.
- Verify your investments. Do due diligence to ensure your investments meet industry purity standards. That’s 99.5% for gold and 99.9% for silver.
Purchase and store your gold. Bullion not intended for a tax-advantaged account can be stored in a home safe while bullion stored in a gold IRA must be secured at an insured, IRS-compliant depository.
Is it worth buying gold or silver bullion?
Buying gold or silver bullion can be worth it for investors looking for stability during periods of uncertainty.
Unlike other investments, bullion does not yield dividends or income and can be a storage risk because it is a physical asset.
At the same time, it allows you to preserve your wealth from inflation while diversifying your portfolio.
Before buying gold or silver bullion ensure it aligns with your goals. It can be good for preserving wealth, but not ideal for investors that want more liquidity.
Determine how much of your portfolio you want to allocate to gold or silver and research dealers to find one to work with.
FAQs
Do central banks gold silver and gold bullion?
Yes, central banks hold gold as a reserve currency but they rarely hold silver.
What is the London Bullion Market Association?
The London Bullion Market Association is the global authority for over-the-counter trading of gold and silver bullion. It sets standards to facilitate trades on the global precious metals market.
Is gold bullion 100% gold?
No, most gold bullion is not 100% pure gold. Instead gold bullion ranges from 99.5% to 99.99% pure gold.
Are gold or silver bullion coins considered to be a legal tender?
Yes, many bullion coins, such as the American Gold Eagle, have a face value and are legal tender by the mints of their issuing countries.
