As part of diversifying your investment portfolio and protecting it against risk, you may wish to invest in bullion or bullion coins. But before you do, you should learn more about bullion and what to look for.
Definition of bullion
According to the U.S. Federal Trade Commission, bullion is a “bulk quantity of precious metals.” Gold is the most well-known of these precious metals, though both silver and platinum are also commonly traded on global commodities markets.
Investopedia’s Barclay Palmer says that because “silver swings between its perceived role as a store of value and its role as an industrial metal,” its value is more volatile than gold. On the other hand, platinum fetches a higher price than gold during periods of stability because of its greater rarity. Palladium is another precious metal commonly used as bullion too.
You can typically find bullion cast as bars or ingots, with its quantity assessed by weight. They are sold by major financial institutions and specialized precious metal dealers.
Definition of bullion coins
Bullion coins are minted from precious metals like gold and silver. Their value depends on their purity. For example, American Gold Eagle coins, produced by the U.S. Mint since 1986, are 22 parts pure gold and two parts silver or copper (the other metals help strengthen the coin, as gold is soft and easily damaged). “Prices fluctuate daily, depending on the price of gold and silver in the world markets,” the FTC says. American Gold Eagle coins are among the best-known bullion coins. Others include the Canadian Maple Leaf, Australian Gold Nugget and South African Krugerrand.
These coins are sold by major financial institutions, brokerage firms, coin dealers and precious metal dealers. The U.S. Mint produces two different kinds of these coins: proof bullion coins and uncirculated bullion coins. The former are specially minted for collectors and often sold in protective display cases. Uncirculated bullion coins, on the other hand, are minted for investment purposes and sold to authorized buyers based on the current spot price for the bullion.
Investment pros and cons
Precious metals can be appealing from an investment perspective because they offer unique protection against inflation. “They have intrinsic value, they carry no credit risk, and they cannot be inflated,” Palmer says. “That means you can't print more of them. They also offer genuine ‘upheaval insurance’ against financial or political/military upheavals.”
While investing in bullion can hedge your investment portfolio against inflation, it does come with downsides. Prices tend to drop during periods of stability, and selling can be a challenge during periods of economic volatility, precisely when prices go up. Moreover, while silver and platinum benefit from having more industry uses than gold, this can potentially lead to over-mining as well.
Obtaining and holding on to bullion can come with its own set of problems. It can be challenging to verify old or rare gold coins, and bullion coins minted outside of the U.S. may not meet the same standards of purity. Additionally, it can be both impractical and expensive to store and insure gold ingot or bullion coins.
Ultimately, investing in bullion and bullion coins has its uses, but it should not be something you dive into head first. Before you invest, talk to other investors and consult with a reputable financial advisor that you trust and who specializes in the bullion market.