When investors buy precious metal, they are really buying bullion — a bulk sample of a particular metal. Bullion is manufactured by both private and government mints and refiners. The three main bullion types are bullion bars, bullion rounds, and bullion coins. Here we will discuss the differences between these types, as well as the manufacturing processes used to produce them. When buying bullion, it is important to know that the price of any given product is directly tied to its market price, known as spot price.
The price of all precious metal bullion products is determined by the spot price of that particular metal. The spot price of gold and spot price of silver are determined daily by what are known as the London Fixings. These meetings of market participants would analyze the current gold and silver spot prices, and then see if there would be more sellers or buyers if the spot price was unchanged. If more sellers, the price would be lowered. If more buyers, the price would be raised, with this process continuing until all of the orders could be filled at one price.
Today, however, most precious metals are purchased using up to the minute spot prices, which are determined by the vast trading taking place in futures markets. Most of this trading is speculation, hoping to take advantage of short-term price fluctuations. Very little actual metal is ever delivered. It has been estimated that for every troy ounce of silver actually delivered, 450 troy ounces of silver are traded electronically, with the owners never seeing the physical metal. Nevertheless, these futures markets determine the spot price of each metal, which is used by mints and refiners when they sell precious metal products to distributors and to the public.
Bullion rounds, bars, and coins are usually manufactured by stamping — a press physically strikes the product out of a blank planchet of metal. The press functions like a die — various designs and words can be stamped into the metal itself. Somewhere on the bullion products, one will almost always see the country or mint name, the metal type, and the fineness of that metal, expressed either as a percentage or by millesimal fineness, denoting the parts per thousand of the desired metal. For example, a 24 karat gold bar could have its fineness expressed as “99.9%” or “.999”.
The other method of bullion manufacture is the pouring method, but it is falling out of favor as it is more time consuming and expensive. With the pouring method, molten precious metal is poured into a mold where it solidifies. Unlike stamping, it is more difficult to impart design features to the finished product. Because of this, the pouring method is almost never used for coins or rounds because they generally feature many more design features than bars do.
Physical bullion products are manufactured by a wide range of both sovereign and private mints. Sovereign mints are those that are owned by national governments, and usually tasked with producing circulation coinage for that nation. Additionally, many sovereign mints around the world also manufacture gold, silver, and platinum bullion, usually in the form of bullion coins. These coins almost always have a nominal face value, as well as legal tender status within the issuing country. These legalities are of particular note to buyers who invest in bullion, as such coins are guaranteed by public law to contain a specific amount of precious metal, struck in a particular fineness. The authenticity, as well as the beauty of official bullion coins makes them desirable among collectors as well as bullion investors. Notable examples of sovereign mints include: The United States Mint, the Royal Mint, the Perth Mint, the Royal Canadian Mint, the South African Mint, and the Chinese Mint.
Private mints are privately-owned companies that produce bullion products. In most cases, they do not produce circulation coinage, nor are their products considered legal tender. Instead, private mints manufacture bullion mainly for investment, and usually in the form of bullion bars or bullion rounds. Bullion rounds are coin-shaped and often resemble circulation coinage, but it is important to note that they do not possess a face value, nor are they legal tender. Despite this, most private mints are extremely reputable, and many of the bars and rounds they produce match, or even exceed in quality, those that are manufactured by sovereign mints.
Many private mints have come and gone over the years, but current famous private mints include: PAMP, Ohio Precious Metals, NTR Metals, the Regency Mint, Golden State Mint, Atlantis Mint, Credit Suisse, and Johnson Matthey. One curiosity exists in this group — the Austrian Mint, though a privately-held company, is charged with producing circulation coinage for parts of the European Union, and bullion coins made by the Austrian Mint possess legal tender status in Austria, along with a nominal face value.
A bullion bar, or ingot is a piece of metal with a rectangular shape that is manufactured from a precious or semiprecious metal. Extremely common are silver bars, gold bars, and platinum bars, but other precious metals are used in the production of bullion bars. Today investors can buy rhodium bullion bars, palladium bullion bars, and even copper bullion bars.
Bullion bars are usually produced by private mints for the world bullion markets, but some government mints also produce bullion bars, though much more seldomly. Bullion bars are easier to manufacture than bullion coins, so mints tend to charge a smaller fee above the metal’s current spot price than they do for bullion coins. Because of this, many investors prefer to buy bullion bars instead of coins as they save money per troy ounce of bullion purchased. Generally, bullion bars are also easier to stack and store than coins.
There are a bewildering number of bullion bars on the market, especially gold and silver bars. They have been produced by a large number of mints over the years, many of which are today defunct. Most investors concentrate on buying gold bars or buying silver bars, but lately platinum bars, palladium bars, and rhodium bars have been increasing in popularity.
Simply put, rounds are bullion bars in the shape of a coin. Whereas bullion coins denote those manufactured by government mints and usually legal tender, bullion rounds are manufactured by private mints, like most bars. Bars often have little design adornment, but bullion rounds usually feature a themed or commemorative design which can often be quite beautiful, making some rounds even popular with coin collectors. Unlike bullion bars, which are manufactured in a wide range of precious metals, bullion rounds are seldom produced in expensive metals like platinum. Much more commonly seen are silver rounds, gold rounds, and those stamped from semiprecious metals, such as copper bullion rounds.
A bullion coin is a term used to denote coins that are struck by government mints. Bullion coins are usually legal tender in the country of issuance, and they usually have a nominal face value, just like circulation coinage. Because they are manufactured by official government mints, bullion coins have their authenticity fully backed by their respective governments, so bullion coins make extremely trustworthy investments. Bullion coins often have some numismatic value, as well, making them popular among coin collectors and hobbyists. Famous bullion coins include the American Eagle, the Canadian Maple Leaf, and the Chinese Panda. Most common are silver bullion coins and gold bullion coins, but many governments have also produced platinum bullion coins and even palladium bullion coins.
Most bullion coins are in “uncirculated” condition. This means that once they leave the mint, they have never circulated as coinage and generally are untouched by human hands. As almost all bullion coins are immediately placed in some kind of protective holder, most of them remain unchanged and stay in uncirculated condition.
Often mints produce a special and much rarer version of a bullion coin known as a “proof” coin. The process of giving a coin a proof finish involves the coin being struck repeatedly until a brilliant and mirror-like surface emerges. Proof coins are rare, have a lot of numismatic value, and are, therefore, produced mainly for coin collectors. Proof coins carry a much higher premium than uncirculated bullion coins so investors who are hoping to buy inexpensive bullion online will shy away from buying proof coins.
One last group of bullion coins deserves mention. As we learned earlier in this Investing Guide, circulation coinage was previously made from precious metals, especially gold and silver. Today, some of these old coins still circulate, yet many more are bought and sold by investors for their silver and gold content. For example, pre-1965 US dimes, quarters, and half-dollars were struck from a silver-copper alloy containing 90% silver. Today, investors buy junk silver coins like this, not for their numismatic value, despite being old, but for their silver bullion content.
Each category of bullion product has its distinct advantages and disadvantages. Most investors who buy physical bullion in large amounts tend to diversify, that is they buy bullion bars, coins, and rounds. All these products together can form a balanced portfolio.
Bars and rounds usually trade closer to the actual spot price of the metal than do bullion coins. Therefore, investors can buy more physical precious metal for their money. Coins have some strong advantages, however. They are backed by government mints, so their authenticity is easily recognized. They often have numismatic value, which can go up independently of their bullion value, making them often worth more than they would be otherwise.
The size of the bullion product also can be an important consideration. The larger a bullion product is the less expensive per troy ounce it costs to purchase. For example, a 100 ounce silver bar will cost less, ounce by ounce, than a 1 ounce silver bar. The obvious downside here is the size — it can be harder to liquidate a larger bullion bar or coin than a smaller one. Because of this, many common bullion and bars are manufactured in small sizes, ranging down to 1 gram or less. Though investors pay a slight premium when they buy bullion products in small sizes, they gain the utility of owning smaller and more easily tradable pieces. If you have questions about bullion products available on CBMint, please feel free to call us toll-free at 214-597-1571.
