Investing in Bullion
Coins and Bars
Bullion coins and bars offer private investors an attractive way of investing in relatively small amounts of precious metals. In many countries - including the whole of the European Union - gold purchased for investment purposes is exempt from Value Added Tax. Options available to private investors, including online channels, are expanding.
Investors can choose from a wide range of gold and silver bullion coins, issued by governments across the world. In their country of issue, these coins are considered legal tender for their face value, rather than their metal content.
Alternatively, the market value of bullion coins is determined by their fine gold or silver content, plus a premium or mark-up that varies between coins and dealers. Of course the premium tends to be higher for smaller denominations.
Bullion coins may range in size from 1/20 ounce to 1000 grams, although the most common weights (in troy ounces of fine gold content) are 1/20, 1/10, 1/4, 1/2 and 1 ounce. It is important not to confuse bullion coins with commemorative or numismatic coins, whose value depends on their rarity, design and finish rather than on their fine gold or silver content. Many dealers sell both.
Gold, silver and platinum bars and bars can be bought in a variety of weights and sizes, ranging from as little as one gram to 400 troy ounces (the size of the internationally traded London Good Delivery Bar). The definition of a small bar is one that weighs 1000g or less.
According to industry specialists, there are 110 accredited bar manufacturers and brands in 27 countries. Between them they produce a total of more than 400 types of standard gold bars, all of which normally contain a minimum of 99.5% fine gold.
As investors increasingly want convenient and immediate access to precious metals investment online channels have become more popular. This is a rapidly growing segment, with providers ranging from online dealers to exchanges that offer a range of options for trading, delivery or storage of bars and coins. Market-leading exponents provide investors with a transparent, secure, convenient and cost-effective round-the-clock platform to buy and own 100% physical gold via the internet. Investors considering accessing gold products via internet channels should ensure they are comfortable with the characteristics and range of facilities provided by any specific online provider or platform.
Allocated gold is gold owned outright by an investor and is stored, under a safekeeping or custody arrangement, in a professional bullion vault. It is the property of the investor.
Allocated gold differs profoundly from unallocated gold which is the property of the bank or dealer and has a similar status to a cash deposit.
Because allocated gold is not the bank's or dealer’s property its owner is considered safe from the risk of the bank or dealer’s potential insolvency.
Costs of Allocated Gold
Investors have to pay for the storage of allocated gold. Fortunately gold is a remarkably compact store of value. A tonne of gold bullion is worth about $54m (January 2013) yet needs only a 14 inch block of space for storage. For this reason allocated storage is inexpensive. It can be found for as little is 0.1% per annum for high volume buyers - and that should include insurance.
Whether you chose a bank or independent commercial storage operator for allocated or unallocated storage depends on your motivation and personal decision making process and trust in the banking system versus that in a private company.
Unallocated gold is not the investor's property.
In signing the unallocated storage agreement the investor executes a deposit of gold. The owner is lending their gold to the bank, just like a cash deposit. A gold deposit to a bank is not covered by standard deposit protection.
That's why when buying gold private buyers often opt for allocated storage and pay the storage and insurance fee.