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Investing 101
Investing 101 Coin

Gold & Silver Investing 101

The Gold & Silver 101 series covers the essentials of saving and investing in
physical precious metals and explain all you need to know to begin investing in bullion.

Gold & Silver Bullion Investing FAQs

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  • Author Gold & Silver 101
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What is a Gold/Silver/Platinum Spot Price?

The spot price for a precious metal is the current market price for that precious metal which is traded in the wholesale market for immediate delivery. The spot price is usually quoted in US dollars per troy ounce and refers to a quotation for a standard but large quantity. The spot price is also known as the international price. So for example, the terms spot price of gold and international price of gold can be used interchangeably.

Because precious metals are traded 24 hours a day around the world during the week, there will always be a live and changing spot price that feeds in from around the world wherever trading activity is highest.

What is the Spread in a Precious Metals Price?

For any precious metal price quotation, the spread is the difference between the bid price and the ask price, and is usually expressed as a percentage. In terms of precious metals bars and coins, the bid price (or buy price) is the current price quote to purchase that gold/silver/platinum bar or coin. The ask price (or offer price) is the current price quote to sell that bullion bar or bullion coin .

What is the Price Premium on a Bar or Coin?

The price premium on a gold/silver/platinum bar or coin is that part of the price that is in excess of the current spot price for that precious metal. Spot prices are price quotations for trading large standard quantities of a precious metal in the wholesale market, not individual bullion bars or bullion coins. The price premium on a gold/silver/platinum bar or coin will generally reflect factors such as the costs of refining, fabrication and minting of that bullion bar or bullion coin and also other costs incurred in bringing the precious metal product to market such as transport distribution, marketing, and wholesaling costs.

Premiums on bullion bars and bullion coins will also vary based on relative supply and demand for that product. Furthermore, premiums on large bullion bars will tend to be lower than those on smaller bars, as the fixed costs of the refinery attributed to that product are distributed over a more valuable item than in a smaller bar. Premiums on bullion coins will tend to be higher than premiums on bullion bars as bullion coins tend to have higher fabrication costs.

What is ‘Bullion’?

Bullion refers to gold, silver, platinum and other precious metals of a known weight and metal purity in the form of a bar, ingot or investment coin. The word bullion is derived from the old French word bouillon, which means to boil, and which became associated with the melting of precious metals in the refining process. Hence we now have the terms bullion market, bullion bar, bullion coins etc.

Should I Buy Gold, Silver or Platinum?

While gold, silver and platinum are all tangible precious metals assets available in the form of high purity bullion bars and bullion coins, a number of factors can influence the relative attraction of each metal for individual investors. These include affordability criteria, the relative prices of each metal, the outlook for prices of each metal, and investment diversification considerations.

Because silver is less scarce than either gold or platinum, it trades at a lower price than gold or platinum, and so is more affordable for an entry level investor. For example, if the gold/silver ratio is currently 90 to 1, this means that for the same price as a 1 troy ounce gold coin you can buy roughly 90 pieces  of 1 troy ounce silver coins.

Precious metals buyers also look at ratios such as the gold/silver ratio and gold/platinum and the trends of these ratios over time for indications as to whether one of the precious metals looks more favourable than another. The outlook for prices or an investor’s interpretation of the price outlook will also sway some buyers into opting for one metal over another.

Individual preference will also affect the decision of which precious metal to buy. This could be down to a buyer thinking that gold is a better store of value than silver, or a buyer having a good understanding of the silver market but not the platinum market.

However, it’s important to remember that although gold, silver and platinum share common physical and usage characteristics, they have different supply and demand drivers, and also different price drivers, and therefore the prices of each of the three metals perform differently over time. This means that their prices are not perfectly correlated, so investing in two or three of the metals will bring diversification benefits as it will reduce risk. These diversification benefits also hold true when you add a precious metals holding to your existing investment portfolio stocks and bonds, with the precious metals reducing the overall risk of your portfolio as the prices of gold, silver and platinum have low correlations with stocks and bonds.

Should I Buy Bullion Coins or Bullion Bars?

Most of the time, the decision to save and invest in bullion bars or bullion coins or in both is a matter of individual preference. Some precious metals investors prefer bars, others prefer coins. Sometimes the buying decision comes down to the look and feel or weight of the gold/silver/platinum bar or coin, or its design or security features, or the brand name of the refinery or mint. All investment grade gold/silver/platinum bars and coins contain very high precious metals purities and are produced to the highest standards by the world’s leading mints and refineries.

While the most fundamental characteristic of a bar is its weight and metal purity, precious metals refineries and mints produce many brands of gold bars, silver bars and platinum bars in many sizes, shapes, surface finishes and designs.

Some precious metals bars have a minted finish, others a cast finish. Some bars come in secure sealed packaging, others are loose without packaging. One of the most important considerations in choosing an investment grade bar is that it is from a known and reputable refinery or mint, and that it has a refinery stamp or brand mark which shows this. This will allow the bar to be trusted and authenticated in the secondary market.

The same is true of bullion coins. Between them, the world’s leading precious metals mints fabricate a wide variety of investment grade gold coins, silver coins, and platinum coins in many different design patterns and series. As per bullion bars, it’s important to choose coins that are well-known and well-regarded in the worldwide bullion markets. Another attraction of bullion coins is that they will typically be issued each year, which is a collectability feature that some investors like.

A further consideration is weights and sizes, for example, some investors may buy a selection of large gold bars for long term storage in addition to some gold coins or silver coins for the eventuality of a financial market crash in which they could liquidate the coins at short notice.

Ultimately the choice of whether to buy bullion bars or bullion coins or both is a personal one, and the wide variety of precious metals bar and coin products in gold, silver and platinum should allow all buyer preferences to be met.

What’s the Difference between Minted Bars and Cast Bars?

Investment grade bullion bars are normally produced by precious metals refineries as either minted bars or cast bars. Minted bars, such as a PAMP 100 gram minted gold bar, have a high-lustre polished finish and smoothly finished surfaces and are manufactured by cutting the metal to precise dimensions and then imprinting on the design, refinery logotype and weight and purity details.

In contrast, cast bars are produced by pouring molten metal into a mould, which is left to cool and set. Cast bars, such as a PAMP 100 gram cast gold bar, have details such as refinery logotype, and weight and purity impressed into the gold bar’s surface. Many refineries produce both minted gold bars and cast gold bars in investment grade purities across a wide variety of weights and designs.

What’s the Difference between a Refinery and a Mint?

The majority of the world’s leading bullion coins are produced by a handful of national mints, such as the US Mint, Royal Canadian Mint, Austrian Mint and Perth Mint. Mints are facilities which produce coinage, and this can include circulation coinage used as national currencies, as well as bullion coins. Since by its nature coinage production is a strategic national issue, most of these mints are government owned. The word mint is derived from the verb ‘mint’, which means to make a coin from metal.

Modern mints make coins using coin blanks which are struck and stamped with designs. Notably, some mints, such as the Perth Mint and Royal Canadian Mint, have their own precious metals refineries, so they are both mints and refineries, despite being called a mint. These mints also fabricate investment grade bullion bars in addition to investment grade bullion coins.

The primary activity of precious metals refineries is to refine gold, silver, platinum and palladium doré and ore from precious metals mining output into high purity investment grade precious metals bars. These refineries also recast bars, for example, recasting large 400 oz central bank gold bars into smaller 1 kg and 100 gram gold bars. Refinery clients include mining companies, banks, other refineries, jewellery companies and metals recycling companies. Refineries are usually privately owned facilities.

Refineries also assay precious metals, store precious metals, trade metals on the international markets and produce components for the watchmaking and luxury jewellery markets. Some refineries also produce precious metals coins, some of which are legal tender, as well as round coins (rounds), but the primary bullion investment products produced by refineries are precious metals bars, both the minted and cast varieties.

For various historical reasons, many of the best known precious metals refineries in the world are located in Switzerland, including Argor-Heraeus, Metalor, PAMP, and Valcambi. Other well known refineries include Heraeus of Germany, the Rand Refinery of South Africa, and Johnson Matthey of the UK. The world’s top refineries are listed on the Good Delivery Lists of the LBMA and LPPM.

What is GST?

GST is an abbreviation for Goods and Services Tax, and is Singapore’s equivalent of a Value Added Tax (VAT) or Sales Tax that is applied to many goods. GST is administered by the Inland Revenue Authority of Singapore (IRAS).

In Singapore, any precious metal which qualifies as an Investment Precious Metal (IPM) is exempt from GST and so when you buy and sell qualifying precious metals in Singapore, the transactions are exempt from GST. The GST exemption on Investment Precious Metals was introduced in October 2012, and prior to that time, the GST was 7% on precious metals transactions.

What is IPM?

IPM is an abbreviation for Investment Precious Metals (IPM). In Singapore, any precious metal which meets the criteria of IPM is exempt from Goods and Services Tax (GST). Singapore’s Inland Revenue Authority of Singapore (IRAS) has guidelines defining what is and what is not Investment Precious Metals. In general, IPM includes high purity gold, high purity silver and high purity platinum in the form of bars, coins, ingots and wafers. Palladium is not defined as Investment Precious Metals in Singapore.

What are the Characteristics of Physical Gold?

Gold is a tangible asset that is relatively scarce and cannot be created, debased or destroyed. Gold is extracted and produced via gold mining. This gives gold inherent value because it is difficult and costly to mine. The many uses of gold also drive its market value.

Physical gold is divisible into any amount or quantity. Gold is also fungible, since for example one gold bullion coin can be substituted for another of the same weight with the same value. Gold also has a high value-to-weight ratio and so is portable and easy to store and transport across borders since a small amount has a high value.

Because physical gold is not issued by any government, central bank, state or monetary authority, gold is free of counterparty risk since it is no one else’s liability. Likewise, gold does not have any default risk because its not issued by an entity which could default.

Gold also has a number of characteristics such as conductivity, reflection, malleability (e.g. rolled into thin sheets) and ductility (e.g. stretched into thin wire) which make it ideal for many industrial, electronic, medical, dental and technological purposes.

What are the Characteristics of Money?

It is universally accepted that any form of money consistently used as money will have the following characteristics:

Money must be easily divisible into various denominations and units. It must also be durable. Money must have an element of scarcity and be available only in limited supply. It must be fungible i.e. one part is substitutable for another. Money must be difficult to counterfeit. Money must also have a history of being accepted. Finally, the best forms of money will have inherent value.

What are the Functions of Money?

There are three generally accepted functions that money performs. Money will serve as a medium of exchange in transactions. Money will also be a store of value allowing accumulated wealth to be preserved. Thirdly, money should act as a unit of account for transactions and valuations. And finally, money should provide a standard of deferred payment, allowing a debt to be valued or allowing goods and services to be paid for in the future.

Are Gold and Silver Forms of Money?

Gold and silver have been used as money throughout recorded history in many civilizations around the world, both as circulating coinages and as backing for monetary systems such as a gold standard or a silver standard. Gold and silver meet the characteristics of money and can therefore perform the functions of money. Gold and silver have consistently performed the role of money and been used as money throughout thousands of years history. Both gold and silver preserve wealth and act as stores of values and were therefore naturally chosen throughout history to act as money and as forms of savings.

How much Gold is there in the World?

It is generally accepted in the gold industry that there are about 192,000 tonnes of gold ever mined throughout history. This estimate is based on data from the World Gold Council which itself is based on historical gold mining data and other accumulated historical data from specialist gold consultancies, mining institutes and bullion banks. Currently, annual new gold supply from mining is estimated to be in the region of 3,200 tonnes per year globally.

What is Above Ground Gold?

Above ground stocks of gold refers to all the gold that has ever been mined throughout history and that has not been lost or vanished. Because gold is valuable and always has been valuable, there is also an economic incentive for gold not to be lost which in turn explains the importance of gold recycling.

The above ground stocks of gold around the world are held in the form of gold jewelry, central bank gold bar and gold coin holdings, private sector gold bar and gold coin holdings, and gold utilised for industrial, medical and technological purposes.

What do “Stock” and “Flow” Refer to in Above Ground Gold?

The ‘stock’ of gold refers to the total amount of gold which has ever been mined and which still exists in the form of jewelry, gold bars, gold coins, or other gold uses such as in industrial applications. This stock of gold is relatively stable because its quantity only increases very slowly over time.

The ‘flow’ of gold refers to the annual supply of gold from mining activities. This is about 3,200 tonnes of gold per year. Compared to the stock of gold, the annual flow of gold is very low, which means that there is a very high ‘stock-to-flow ratio’ for gold, approximately in the region of 60 times, i.e. there is about 60 times more gold held in above ground forms than there is of new gold entering the market from annual mine supply.

The high stock-to-flow ratio of gold means that physical gold is a highly liquid asset for trading and resale, and which allows supply deficits to be filled from existing gold coming into the global gold market when price dictates. The high stock to flow ratio also fundamentally explains why gold is a store of value, a safe haven, an inflation hedge and a diversifier of investment and asset portfolios.

What is Market Liquidity?

In asset and financial markets, liquidity refers to the ease with which you can buy and sell assets. Those market participants who facilitate liquidity are known as ‘liquidity providers’, i.e. they are the market participants such as brokers and dealers who will normally stand ready to buy your assets at any given time.

The concept of liquidity is also applicable in the bullion markets. Gold and silver markets exhibit high liquidity since it’s always simple to sell your gold or silver to a bullion dealer, and dealers stand ready to buy your bullion at the going price at all times, as long as you hold authentic bullion coins and bars from well recognised precious metals refineries and mints.

Does the Paper Gold Market or the Physical Gold Market set the Price of Gold?

In all markets, the price is established or discovered in those parts of the market that are most liquid or that have the highest trading volumes. In the global gold market, the venues or parts of the market with the highest trading volumes are the London over-the-counter (OTC) paper gold market and the COMEX gold futures market. It is trading and price activity in these markets which predominantly sets the international gold price. Supply and demand of physical gold has little or no role in setting the gold price, and physical gold transactions essentially inherit gold prices that are discovered in the paper gold markets.

What is Paper Gold?

Paper gold is a term referring to securities or claims which provide exposure to the gold price but that are not the same as physical gold ownership. These securities and claims would include gold futures contracts that trade on the CME futures platform (a.k.a. COMEX) as well as unallocated gold positions traded in the London gold market, which are claims against bullion banks.

Paper gold products are overwhelmingly cash-settled and have no direct connection to underlying physical gold. Alternative names used for paper gold include synthetic gold  (signifying that something is not real gold ) or screen gold (where a trading position is merely speculating on the gold price on a trader’s screen and the position has no connection to real gold).

What are Numismatic Coins?

Generally speaking, numismatic coins are coins that exhibit an aspect of collectability or rarity, and their market value will be above and beyond the value of the precious metal contained within the coin. Numismatic coins include gold numismatic coins and silver numismatic coins, and span historical and rare bullion coins, limited mintage issues, coins with special privy marks, and other coins with an individual uniqueness which makes them collectible.

What is the LBMA?

The LBMA, an abbreviation for the London Bullion Market Association, is a trade association for the London gold and silver markets, and since these markets are global in nature, the LBMA can be viewed as a global bullion trade association that is based in London. The LBMA was founded in 1987 by the Bank of England and a number of bullion banks (investment banks) involved in precious metals trading. Nowadays, the LBMA’s membership is mostly made up of bullion banks, gold and silver refineries, commodities trading companies, and other companies involved in the bullion industry such as security transport and vault operators.

The LBMA’s aims are to promote and develop the London and global bullion markets. LBMA bullion bank members used to oversee the London gold and silver fixings, and now that role is undertaken directly by the LBMA in its LBMA Gold Price auctions and LBMA silver price auctions.

Some of the other responsibilities of the LBMA are the Responsible Gold Initiative for sourcing gold, and  importantly, the maintenance of the London Good Delivery (GDL) List for gold and silver, which is a worldwide quality standard for the world’s best precious metals refineries. The LBMA also accredits new refiners on to the GDL, and also liaises with financial regulators and the media. More information about the LBMA can be found at BullionStar’s Gold University.

What is a ‘Good Delivery List’?

The term ‘Good Delivery List’ is used by the LBMA and its sister organization, the London Platinum and Palladium Market (LPPM), to refer to precious metals refineries around the world which the LBMA and LPPM have accredited as maintaining the highest standards in the refining of precious metals. There is a Good delivery List for gold refineries and a Good Delivery List for silver refineries, both administered by the LBMA, and also Good Delivery Lists for platinum and palladium, both of which are maintained by the LPPM.

Good Delivery Lists are not just academic, and are used by commodity exchanges, gold and silver exchanges as a benchmark for accepting the bars of precious metals refineries for contract settlement, and by regulatory and government bodies as a benchmark for defining which brands of precious metals bars qualify as investment grade bars.

Are Precious Metals Prices Manipulated?

In financial markets, including securities and commodity markets, price manipulation can be defined as deliberate intervention or attempted intervention into the market for that security or commodity so as to alter the price or interfere with the free and fair operation of that market. Price manipulation is market abuse and is illegal under securities and regulatory laws. Forms of price manipulation can include secretive and coordinated intervention by governments or central banks, as well as cartel like trading by a group of traders from distinct investment banks acting in unison to deliberately move prices.

There is ample evidence that central banks have intervened into the gold market in the past or have actively planned to do so. These interventions aimed to stabilize the gold price or smoothen gold price movements. There is also factual evidence that investment bank traders have coordinated price manipulation of gold and silver, including documented fines by regulatory authorities of investment banks and their traders, and documented evidence from class action suits brought by groups of gold and silver investors against investment banks that participated in pricing benchmarks such as the London Gold and Silver fixings.

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