Do you know what someone means when they say they are investing in gold bullion? You may know what gold is, but, what is bullion? The term bullion is used to refer to the pure form of a precious metal. The most common types of precious metals that are mined and processed in bullion form include gold, silver, platinum and palladium.
Gold or silver bullion can take several different shapes or forms. It can be turned into coins like the American Gold Eagle coin or the Canadian Maple Leaf gold coin. It might be shaped into large bricks or bars (commonly referred to as gold biscuits) or poured into a mold and made into ingots of various sizes.
Unlike rare collectible gold or silver coins that have both a precious metal component and a numismatic component that comprises their value, gold and silver bullion coins are valued only on their gold content. While bullion coins do have a dollar value assigned to them, they are not normally circulated, because they are much more valuable for their gold or silver content. Using the American Gold Eagle as an example and with the spot price for an ounce of gold at roughly $1,650 per ounce, the following table illustrates the point.
1 oz Gold Eagle ………..…...$50 Face Value …………. Worth $1,650
½ oz Gold Eagle ………….. $25 Face Value …………. Worth $825
¼ oz Gold Eagle ………….. $10 Face Value …………. Worth $412.50
1/10 oz Gold Eagle ………..$5 Face Value ………….. Worth $165
When it comes to gold or silver bullion coins, many people get a bit confused about the gold or silver contained in a given coin. To be defined as pure gold or silver, the purity of the coin must be 99.9% gold or silver. While the silver American Eagles do meet the criteria, the same can not be said of the Gold Eagle.
The American Gold Eagle is actually 22 Karat gold. Because gold is a softer metal than silver and naturally less durable, gold coins are often made with alloys to add strength and durability. The gold eagle is 91.67% pure gold and the rest of the coin is made up of a metal alloy. If you buy a 1 oz gold eagle coin, don’t worry. You are not getting cheated out of 8.33% of an ounce of gold. The actual coin contains 1 full troy ounce of gold and weighs 1.0909 Troy ounces to allow for the weight of the alloy.
As the purest way to invest in gold or silver, bullion makes sense. When you buy bullion, you pay the spot price plus a small premium to the seller. When you sell it, you get the spot price. If you were to purchase rare or collectible grade gold or silver coins, there will usually be a large premium over the spot price of the metal and there is always doubt about whether or not the numismatic value will add to the future selling price of the coin in the future. In addition, some people prefer to buy a 10 ounce bar of gold or maybe a 100 ounce bar of silver for convenient storage and a reduction in the refinery costs because the metal is not processed into coins.