Gold has been a desirable precious metal for centuries, used first to trade in the markets of Lydia in Ancient Greece (home of the mythical King Midas, who turned everything he touched to gold) and was still in play as active currency in the United States until the Emergency Banking Act forced Americans to convert their gold into U.S. dollars in 1933. Though it’s simply a basic chemical element found in deposits of certain rock foundations, gold has allured, mystified and mesmerized humanity for centuries, and still holds immense value today.
Like all things precious, gold is valuable because it’s scarce. The United States Geological Survey estimates that there are about 33,000 tons left in the world to be mined. But there’s more to it than that. Gold is valuable because of its physical properties—it’s a malleable, soft, dense and durable metal that just so happens to be eye-catching and beautiful enough to have appealed to humanity for thousands of years. Stability, scarcity and physical attributes make gold a wise investment, whether in the form of gold bullion bars, coins or jewelry.
What is Bullion?
Bullion: Bulk gold or silver that is refined to be 99.9 percent pure, melted and molded into bars, ingots or coins. The word bullion comes from the French word “bouillon,” which means boiling.
A Brief History of Gold Bullion
When it was used as money, gold was part of a system known as the gold standard, wherein the value of money was defined in terms of gold. Modern societies now use fiat money, or currency that’s established by government regulation. In the latter system, money’s worth is determined by supply and demand rather than a physical commodity such as gold. When currency was backed by gold, there had to be actual gold to back it up.
Gold bars predate modern economics. There were early forms of gold ingots as far back as just before the rise of Ancient Rome, and we know that the Romans used bullion bars as currency in Mesopotamia as early as the 7th millennium B.C. Though historians have documented the fact that gold ingots were used as currency long before the establishment of modern banks, it wasn’t until the 1700s that the precious metal really got off the ground as a formal, regulated system.
The Bank of England first created gold reserves (it still serves as the world’s second-largest custodian of gold) and had gold minted into gold currency coins in the 18th century. At the same time, the English colonies in the U.S. used Colonial Gold until the country’s independence, when it began to produce its own coins under the Coinage Act of 1792. Gold coins remained in circulation until President Roosevelt signed Executive Order 6102 forbidding the ownership of gold.
Today, no American currency is made of gold or silver, but instead of much more abundant and less valuable metals, including copper, zinc and nickel. Though our money is no longer backed by gold, it still remains a powerful financial tool, with mints producing gold bullion bars and coins as a stable alternative to the ever-fluctuating U.S. dollar.
How Bullion is Made
The most traditional way to invest in gold is through gold bullion, which is essentially pure gold that has been refined, melted and formed into bars. Gold is inherently soft, malleable and able to be regularly manipulated without breaking or damage, so it can withstand the high heat, chemicals and pressure required from the bullion-making process. Making bullion requires complex mining, extraction, refining, pouring, pressing and striking, all to end up with a high-value end result: a (mostly) pure gold bar or ingot. Here’s a quick snapshot of the process.
- Step 1: Mining Gold—Miners use hydraulic water jets, explosives and other tools to separate gold from the deposits underground. Once it has been mined, gold is then isolated from the sediment through a multi-step process that reduces the rock into a sand-like texture. It’s then mixed with a chemical solution and then heated in a smelter. This causes the gold to separate from the other elements and sink to the bottom so it can be collected.
- Step 2: Refining Gold—The post-smelter gold is one step closer to becoming bullion, but it’s not totally pure. Chemicals, pressure and high temperatures combine in a furnace to refine the gold. New technologies like electro-refining can refine the gold even further through eclectically charged immersion. Once the gold is sufficiently refined, it’s typically tested. It must be 99.9 percent pure in order to be classified as .999 or .9999 fine.
- Step 3: Pressing Gold—Once the gold is pure, it is slightly cooled and then reheated so it can be cast into bars using bar- or ingot-shaped molds. The gold must then cool before it’s removed from the mold and re-tested for purity. Some bullion is then struck with an extremely high-pressure device to apply any markings or designs.
How it Differs from Other Forms of Gold
As you can see, the primary difference between gold bars, coins, jewelry and other forms of this precious metal is the shape. Generally, gold bars are simpler in design than coins, which allows them to have a significantly lower premium but makes them slightly more vulnerable to counterfeiting than coins. However, many mints have developed unique security features that prevent the bar from being counterfeited or stolen, including holograms, registered serial numbers and certificates of authenticity.
Another way that bullion experts prevent counterfeiting is through bullion coins. What are bullion coins, you ask? Well, as you might imagine, they’re basically gold bullion in coin shape. However, unlike numismatic coins (collectible coins not produced in modern times), bullion coins are generally purchased strictly as an investment or for an inflation hedge. Popular bullion coins include U.S. Gold Eagles, Canadian Gold Maple Leafs and American Gold Buffalos.
The process of making gold bullion coins is a bit more complex, as they often have highly desirable and intricate designs, which makes them slightly more costly upfront compared with bullion bars, which are larger and less adorned. On the other hand, this makes them extremely desirable to collectors and history buffs. Reference the pros and cons below to determine which investment option best suits your needs.
Pros and Cons of Bullion Bars
There are pros and cons of investing in gold bullion compared with other options, such as coins. People purchase gold for a wide variety of reasons, so it’s important to understand the different options before making a large (and likely expensive) investment. Here are a few of the basic pros and cons of investing through bullion bars compared with other gold avenues.
Pros of Gold Bullion Bars
- It’s More Affordable—Gold bullion bars have the lowest premium over spot price. As far as buying gold goes, you’ll get more for less with bullion bars compared with coins, jewelry or other options.
- It’s Great for New Investors—Gold bullion allows new investors to quickly pad their portfolios safely. The fact is that gold prices historically rise over time more steadily than other investments.
- It’s Easy to Buy—You can buy gold bullion bars online at trusted resources like Provident Metals in sealed, attractively displayed packages with certificates of authenticity.
- It’s Easy to Store—Gold bars, though larger than coins, are easier to store in large quantities because they are more concentrated and tend to be pure, so you can fit more in a smaller space. They are also easy to stack.
Cons of Gold Bullion Bars
- It’s Easier to Counterfeit—One of the primary downfalls of bullion bars and ingots compared with coins is that they’re relatively plain and therefore easier to counterfeit. Generally, gold coins are harder to dupe.
- It’s Harder to Barter—Compared with coins, bullion is tougher to barter because it doesn’t have legal tender status.
- It May Require Offsite Storage—If you plan to load up on a whole lot of gold bullion, there’s a good chance you’re going to need to make some room. Secure bullion storage is an important part of your investment strategy.
- It’s Not as Collectible—Compared with other forms of gold, especially coins and jewelry, gold bars appeal less to collectors because they generally don’t have unique designs or special editions.
The fact is that everyone has their own personal reasons for investing in gold, so there’s no prescription for all investors. However, generally speaking, if you have a penchant for history or currency or are a fan of numismatics, bullion coins may be a good way to go. On the other hand, if you’re big on practicality and see your gold investment as just that—an investment—then gold ingots or bars are the best choice.
Why Invest with Gold Bullion?
There are a few primary reasons why people tend to use gold to pack their portfolios.
“We have gold because we cannot trust governments,” President Herbert Hoover was said to have quipped to President Franklin D. Roosevelt during discussions on the Emergency Banking Act in 1933. While that is indeed one reason why people invest in gold—the thinking is that, if the government failed, money would be worthless—not all bullion investors buy out of fear or preparation. The fact is that gold is a tried-and-true, stable and good investment. It’s demonstrated to hold its value, works as a great hedge against inflation and is a strong alternative to the weakening U.S. Dollar.
How to Buy Gold Bullion
If you’ve decided to invest in gold, there are a few ways you can go about it. One of the most common ways to invest using gold bullion is through an IRA bullion that can be funded through the purchase of precious metals. You can certainly still buy physical gold bullion, so long as you have a safe and secure way to store it. When you buy from Provident Metals, you’ll receive your gold bullion through reliable and discreet delivery. It’s important that you purchase from a gold supplier that only uses discreet packaging and labels to lessen the risk of theft and one that prioritizes secure purchasing and delivery.
- By Mint—Gold bullion bars are produced by a variety of private and sovereign mints worldwide. Be sure to do a little bit of research on the difference between sovereign and private mints before purchasing, as these each have their own special benefits. While there is no “best” mint, you may prefer the aesthetics or shape of certain mints.
- By Weight—The most common way to purchase gold bullion bars is by weight. Generally, you will choose the weight of your bars based on your budget. Naturally, the heavier bars cost more and lighter ones cost less. Some people prefer to have smaller bars in larger quantities or fewer bars in larger weights. It’s all up to you.
Should You Invest with Gold Bullion?
There’s no denying that gold is extremely valuable and that it’s likely to stay in the investment game for centuries to come. In general, investment experts recommend using gold to diversify and stabilize portfolios, but whether or not you opt to take the gold bullion route is totally up to you and your financial planner. If you do decide to go gold, Provident Metals is always on hand to help you achieve your investment goals through gold, silver and other precious metals.