Bullion makes an excellent investment and a valuable addition to your portfolio for a number of reasons. It’s used by investors as an inflation hedge and can help preserve your savings through high inflation, recessions and market crashes. It’s a great alternative asset to diversify your portfolios.
However, as with all investments, there is some specific terminology and industry jargon used. On the one hand, for people who understand them, these terms make it much easier to do business. On the other hand, these terms can make people who are unfamiliar with them feel overwhelmed and like bullion investing is far more complicated than it actually is. This can make them wary of getting involved and potentially miss out on the benefits of investing in bullion.
But investing in silver and gold bullion doesn’t just come with all the benefits listed above. Once you understand the basics, it’s also much more straightforward than many other investment vehicles.
Depending on whether you’re an avid investor interested in diversifying your investment portfolio or are just beginning to invest and looking for an accessible entry point, you might know more or less of these terms. For some, you might have a rough idea of their meaning, but it’s wise to get a fuller understanding before you start investing your money.
We’ve put together a handy guide to all the terminology you should be aware of and understand before investing in bullion. Knowing this jargon will give you the confidence to get started in this great investment vehicle.
Finding Reputable Dealers
Investing in bullion is precisely that — an investment, which means the primary goal is to maximize your return on investment. That’s why it’s imperative to work with trusted local bullion dealers for a safe and secure way to invest in precious metals.
At Global Bullion Suppliers, we want our customers to know exactly what they’re getting into. The more informed our customers are about bullion, the better they understand how to make choices to best meet their goals, and ultimately, the happier they are.
This is why we offer a free bullion consultation for those new to bullion, which covers many of the terms we’ll get into below, as well as other topics of interest to new bullion investors. If you want to learn about bullion terminology, the different products, the buying and selling process, and more, you can check out our resources or book a free consultation.
You don’t need to know everything about bullion to begin investing in it. Few people know everything about the stock market before buying their first stocks. But it’s important to have a basic understanding of the costs, fees, how the investment makes money, and how well an investment fits your risk tolerance and financial goals.
The first step is to learn what all the terminology used to talk about bullion and bullion investing means.
Assay refers to the testing and analysis of silver or gold bullion to determine its fineness or purity. There are different methods of assaying metals. The most common methods include X-Ray fluorescence (XRF) and fire. XRF tests the purity of the metal quickly and accurately. Fire assay is often considered the most reliable and accurate method of testing, but it requires the metal to be melted down.
The first term you should know when investing in bullion is bullion. If you’re reading this, you probably have some idea of what bullion is, but it’s important to understand exactly what it is and what it isn’t.
Bullion refers to precious metals of high purity in the form of bars and coins. They are valued for their investment quality and are .995 or 99.5% pure or higher. There are international standards for weight and purity that bullion is required to meet.
Bullion coins refer to coins that are prized for their precious metal value and minted by official agencies for investment purposes. While they are legal tender coins, their market value depends on the silver or gold content instead of the face value or rarity.
Bullion coins are valued in terms of their precious metal content, but they are legal currency. The face value is the legal monetary value of the coin and is printed or stamped on the face.
When discussing precious metals, fineness refers to the purity of the metal. It can be indicated as a percentage (99.9%), a decimal (.999), or parts per thousand (999). All of those are different ways of saying the same thing, and they are more accurate than karats.
For gold, the minimum accepted fineness in global trade is 995, although US Golden Eagles and South African Krugerrands are widely accepted despite having 9167 purity.
However, most investors favour 999 or 9999 purity. The difference between 995 and 9999 comes down to the bullion refining process and is negligible for most primary refiners.
It’s important to note that in Canada, gold bullion is considered an investment vehicle and is exempt of tax as long as it meets the minimum of 995 purity (and 999 purity for silver), meaning US Golden Eagles and South African Krugerrands do not meet the minimum standard and are not exempt of tax.
These are official marks that are struck onto items made from precious metals to guarantee purity or fineness. The hallmark typically notes the type of metal, fineness, the maker and year. Each country has different requirements for hallmarks.
A measurement that indicates the purity of gold. A gold karat is one in 24 parts, with 24-karat gold being pure gold, and 16-karat gold containing 16 parts gold and 8 parts alloying metal.
London Bullion Market Association (LBMA)
The LBMA is an over-the-counter market for trading gold and silver. It consists of central banks, private investors, producers, refiners and others. The LBMA Good Delivery Lists refer to acceptable gold and silver refiners whose bars meet the required physical characteristics (according to fineness, weight, marks and appearance).
A symbol or letter printed on a coin to identify the mint where it was stuck.
Numismatic coins are coins that are prized more for their rarity, age, condition or mint marks rather than silver or gold content.
Obverse and Reverse
The obverse is the front of a coin, usually with a person’s image. The reverse is the back of the coin, often with the insignia of a country.
Naturally occurring metals with inherent value for their rarity, utility and beauty. Precious metals are metals of significant value, such as gold, silver, platinum and other platinum group metals.
A premium refers to the amount of money paid for a bullion product that is above the spot price. A premium is almost always added to the spot price to cover manufacturing, shipping and supply fees. Dealers should always be transparent about their premiums.
Premiums vary for different products and are dependent on the type of bullion product, the volume of the transaction, whether the product is new or preowned, as well as supply and demand. Often given as a percentage, but it can be a fixed rate.
The process of separating and purifying a precious metal from other impure metals.
These are bullion pieces of precious metals, similar to coins, except they are not considered legal tender. They can be produced by government or private mints.
Spot Price or Spot
Live market value of any commodity – including precious metals. The spot price of gold and silver bullion is always fluctuating and is the price it can be sold at for the current moment, not what it will be worth in the future. It’s affected by several different factors, including supply, demand and investor behaviour.
To find the current spot price for precious metals, visit a website like Kitco that gives up-to-date pricing in various units of measurement.
The spread is the difference between the selling and buying price of a commodity.
A traditional unit of weight, which is equivalent to 31.1035 grams. When we talk about an ounce in the world of bullion, we are always referring to one fine troy ounce, which is different from a standard ounce, which is equivalent to 28 grams.
The difference isn’t just to make things confusing for newcomers. The troy ounce dates back to the middle ages in France when merchants needed a standardized unit of measurement to simplify business.
Getting Started with a Reputable Dealer
We hope this provides a better understanding of some regular terminology used when talking about bullion investing. If you have more questions, feel free to contact us or book our free consultation. We can suggest products based on what you’re looking for or share more about the buying and selling process. We’re also happy to discuss the accuracy of acid testing to authenticate gold or whether rare earth metals are a good investment. At Global Bullion Suppliers, we want all our customers to be informed and feel confident about the investments they make.