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In 2022, the global demand for gold increased by 18%, with demand from central banks reaching a 55-year-high. You may be interested in adding gold to your portfolio as well. If so, purchasing gold bullion may be a good option.
This guide covers everything you need to know about purchasing gold bullion — whether physically purchasing the gold, investing in gold ETFs or opening a gold IRA . Keep reading to learn more.
What is gold bullion?
Gold bullion encompasses gold bars, coins, rounds and ingots that are at least 99.5% pure. The term bullion is used to describe items that are valuable because of the precious metal they contain rather than any form or backing from the government.
For example, there are gold coins that the government creates, which double as legal currency. You can use them to buy groceries or pay your restaurant check. However, these are generally not considered bullion because they do not meet weight or purity standards typically required by investors.
Investing in a gold bar, on the other hand, involves purchasing bullion. This is because the bar will only be valued for the precious metal that it contains and no other reason.
How the gold bullion market works
The market for gold bullion works largely the same as other capital markets. Investors can create online accounts to access marketplaces where they can buy and sell physical gold bullion, gold exchange-traded funds (ETFs) and options, precious metal IRAs, amongst other ways to invest in gold.
The different types of gold bullion
If you buy physical gold bullion, it will be valued based on the object’s weight. For example, two ounces of gold bullion should be the same price regardless of whether it’s been fashioned into a bar or a coin.
This means that the type of physical gold bullion you purchase is less important than the purity of the material and its weight. With that in mind, these are the types of physical gold bullion investors can purchase:
Gold bullion bars are what many people imagine when purchasing gold bullion. These are simply pure gold that has been smelted into a rectangular shape with rounded edges.
Gold bullion coins are produced by the official government mints (often the U.S., Canada or South Africa). They are typically available in four weights:
- One ounce
- Half ounce
- Quarter ounce
- Tenth ounce
These coins are made with varying degrees of purity (for example, the American Eagle coin has 91.67% purity) and often include silver and copper for balancing. Because these coins are meant to be handled, they usually include less gold than other types of bullion. Gold coins minted by the U.S. are technically legal tender. That said, it’s largely symbolic, as most people that buy these coins do it for their gold bullion content or to expand an existing coin collection.
Gold rounds can look very similar to gold coins, but they aren’t minted by the U.S. government. Their only value is their bullion content. The only difference between gold rounds and gold bars is the object’s shape.
Where to buy gold bullion
There are bullion markets around the globe in places such as New York, Tokyo and Shanghai. But the largest and most active gold bullion market is the London Bullion Market, which operates 24 hours a day. It allows for the trading of spot gold bullion as well as options and forwards for this precious metal.
However, joining the London Bullion Market is only a realistic option for companies and large investors. The exchange charges a minimum of £7,100 (approximately $8,700) in annual membership fees, and you have to receive recommendations from three current members of the marketplace to join.
For the average individual investor, purchasing gold bullion directly from online and in-person retailers is typically the best option. There are many of these to choose from, including APMEX, JM Bullion and even local pawn shops.
However, it’s important to only do business with reputable dealers. Otherwise, the purity of the gold bullion you purchase could be lower than you expect. Poor quality bullion can eat into potential profits you can make from the investment.
How to buy gold bullion
As you research how to buy gold, you’ll find that the process varies based on how you want to own the asset. We provide guidance for purchasing physical bullion, gold ETFs, gold IRAs and gold futures contracts below.
Physical gold bullion
If you want to own physical gold, then learning how to buy gold bars online will likely be your best option. The best online dealers have strong reputations and long track records of providing physical gold bullion at the specified weights and purity levels. Some of the top dealers of physical gold bullion include:
- JM Bullion
- Provident Metals
- Westminster Mint
- Money Metals Exchange
It’s also possible to purchase physical gold bullion locally through pawn shops, jewelry stores and other small dealers. This can reduce your shipping costs and get you the gold you want faster.
However, local dealers typically have less established reputations than major online retailers. You may get what you want from one of these providers, but they could also sell you gold that’s less pure than you expected.
The bottom line is that buying physical gold bullion online is typically a less risky proposition. But if you know a highly reputable local dealer, buying from them may be a viable — and more affordable — alternative.
Owning physical gold bullion can present storage challenges, especially if you have a small living space. One alternative to this is purchasing a gold ETF.
Gold ETFs are funds that buy physical gold bullion and trade like stocks. You can purchase these ETFs on all of the best investment apps. By doing so, you essentially own a “share” of the ETF’s total gold holdings.
Some of the most popular gold ETFs on the market today include:
- Goldman Sachs Physical Gold ETF (AAAU)
- VanEck Merk Gold Trust (OUNZ)
- iShares Gold Strategy ETF (IAUF)
- iShares Gold Trust Micro (IAUM)
Purchasing a gold ETF is a more convenient way to add gold to your portfolio. However, most funds charge an expense ratio. These are often around 0.25% of the total purchase amount but can be higher. Any expense ratio you pay will eat into your investment and diminish your returns.
A gold IRA is a self-directed individual retirement account that allows you to hold precious metals such as gold, silver, platinum and palladium. Like a traditional IRA, it is funded with pre-tax dollars and provides tax-free growth.
You can purchase gold bullion through gold IRA companies but you won’t be able to physically store them yourself. That’s because precious metals for these types of IRAs must be held in an IRS-approved depository, though you would still be the owner.
Although a gold IRA can be used as a hedge against inflation and as a way of diversifying assets, it’s not without its drawbacks. Storage and administrative costs can add up, the gold market can be volatile and some gold IRA companies are not legitimate. If you decide to purchase gold bullion through a precious metal IRA, make sure you do the research and choose a reputable gold IRA custodian.
Gold futures contracts
Gold futures are legal contracts between a buyer and a seller of gold. They define an agreement to purchase a specific amount of gold at predetermined prices and dates. This allows you to get exposure to the price of gold without ever owning any because you can sell a futures contract that you purchase before it’s fulfilled.
Gold futures contracts are primarily used by buyers who wish to speculate on the price of gold. If you believe that gold will be more expensive by a certain date than it is now, you can buy a futures contract to make that bet. If you prefer, you can also use futures contracts to gain exposure to the price of gold dropping by a predetermined date.
This method of buying gold is a more speculative investment strategy than purchasing physical bullion or an ETF. It’s risky because your futures contracts could expire worthless if the price of gold doesn’t behave as you predict it will.
What is the best gold bullion to buy?
The best gold bullion to buy depends on your goals. Are you interested in owning physical gold? If so, pay close attention to the bullion’s purity and weight. The design and shape of the bullion only matters if it impacts your preference for storing the gold you purchase.
Depending on your needs, you might prefer exposure to the gold market without having to worry about storing physical bullion. In that case, purchasing an ETF is likely your best option. You’ll be able to hold shares in your regular investment portfolio and won’t have to worry about factors like purity, weight and storage.
Futures, on the other hand, only make sense if you want short-term exposure to fluctuations in the price of gold. They can also be used as a hedge if you’re making a large investment in gold and want some protection in case the price of the asset suddenly goes down.
What is the cheapest form of gold bullion?
Form isn’t usually a defining factor when it comes to determining the price of gold. In other words, the price of gold bars, ingots and rounds will all be based primarily on the purity of the product and its weight.
That said, gold bullion that features special designs may cost more than regular bullion without anything extra on it. For example, a gold coin from the U.S. Mint with a commemorative design on the front may cost more than the actual value of gold in the product.
It’s also worth mentioning that you can typically purchase fractional shares in ETFs. This allows you to purchase as little exposure to gold as you want at any given time. That makes ETFs a good option if you want to invest a fixed amount of money into this asset class.
Tips to keep in mind when investing in gold bullion
When evaluating whether gold is a good investment for your goals, consider these tips before making your first purchase.
Working with a reputable dealer is especially important when investing in gold bullion. There are people who may try to take advantage of you as a new investor by making dishonest claims about their bullion’s purity and the fees they’ll charge you for purchasing it.
Finding a dealer you can trust will ensure you always get what you pay for when investing in gold bullion. As covered earlier, JM Bullion and APMEX are two of the most trusted vendors in this space. Keep this in mind when buying gold bullion online.
Consider the fees
It’s also important to look closely at dealer fees before purchasing bullion. It’s common for vendors to charge fees for shipping, manufacturing and processing.
However, these shouldn’t be excessive, so compare options from multiple vendors before making a purchase. Doing so will help you identify which reputable dealer will sell you the bullion you want with the lowest possible fees.
Look at the spot price of gold before buying
The spot price of gold refers to the price at which the asset is currently being traded on exchanges. It’s the figure that you may be able to sell your bullion for if you ever want to do so.
Verify that you’re getting a fair rate by looking at the spot price of gold before buying bullion from a dealer. Dishonest gold bullion dealers may lie about the fees they charge by building them into their price per ounce, which is a premium to the market spot price.
Think about insurance
If you’re going to own physical gold bullion, consider purchasing an insurance plan for that investment as well. You want to have some protection in the event that your bullion is stolen or something goes wrong. You can find gold bullion insurance online if you’re interested.
Remember your investment is relatively illiquid
When you’re dealing with bullion, keep in mind that the asset isn’t as easy to sell as other investments.
You can find dealers who purchase bullion online and through local resources, but many will try to offer a lower rate than the spot gold bullion price. This means cashing out of your bullion investments could take longer than you want.
The bottom line
Gold bullion is physical gold that’s priced based on its purity and weight. Purchasing it can be a good way to gain exposure to this asset class, but it’s not the only way to do so.
You also have the option of buying a gold ETF if you don’t want to hold physical bullion. Gold futures contracts allow you to hedge your investment or place a speculative bet on the price of gold.