Bullion is a non-ferrous metal that has been purified to a high standard of purity. The term usually refers to bulk metal used in making coins, especially precious metals like gold and silver. The word “bullion” comes from the Anglo-Norman term for a melting house where metal was refined, and from the French word “bouillon,” meaning “boiling.” Although precious metal bullion is no longer used to produce coins for everyday use, it remains a popular investment due to its stability during economic uncertainty. To check the purity of gold bullion, traditional fire assay methods are used alongside modern spectroscopic techniques.
As Investment
Bullion specifications are often regulated by market bodies or laws. In the European Union, gold must have a minimum purity of 99.5% to be classified as “bullion” for investment purposes, and bullion coins must have at least 90% purity. Investors buy physical bullion to protect against currency fluctuations, inflation, geopolitical risks, or to diversify their portfolios.
London Bullion Market
The London bullion market is an over-the-counter market where gold and silver are traded in bulk. The London Bullion Market Association (LBMA) oversees this market, setting and promoting quality standards for bullion bars. Good Delivery Bars must have a minimum purity of 99.5% for gold and 99.9% for silver. Bars with lower purity are not considered bullion.
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Coins
Bullion coins are modern precious metal coins minted by official agencies for investment purposes. Some, like the Maria Theresa thaler and the Krugerrand, have been used as currency in the past. Modern bullion coins generally do not circulate, even though they have legal tender status and face value. These coins can be produced in various forms, including business strikes and collectible proof and uncirculated versions, such as the American Silver Eagle and American Gold Eagle coins. Private mint strikes, known as bullion rounds, wafers, or bars, are often sold slightly above the spot price of the underlying metals. Collectible versions can be sold at a higher premium over their melt value. The value of privately struck items can also be influenced by factors such as grade and mintage.
Uses
Base metals, like copper, can be refined into bullion, though they are not widely traded in this form. The bullion market involves various professionals, including banks, fabricators, refiners, vault operators, and brokers, who manage refining, melting, assaying, transporting, trading, and storing gold and silver bullion. Investment companies and jewelers also use bullion for their products and services. Shares in gold exchange-traded funds (ETFs), like SPDR Gold Shares, represent a derivative linked to the gold spot price. However, shareholders in such ETFs are usually unsecured creditors with no direct claim to physical gold bullion.
Investors often prefer to own physical bullion rather than ETFs to avoid counterparty risks. Private individuals use bullion as an investment or store of value. Gold and silver bullion are important forms of physical precious metal investments and are often used as protection against inflation or economic instability. Compared to numismatic coins, bullion bars and coins are usually bought and traded with lower premiums over the spot price, and their trading spreads are closer to the value of the contained metals.
Conclusion
Bullion remains a valuable and stable investment option despite changes in its use for coinage. Its high purity and the regulatory standards governing it ensure its continued importance in financial markets. Whether through physical ownership or market investments, bullion offers a reliable way to hedge against economic risks and protect wealth.