Gold bullion is a piece of gold that is in bar form and is recognized as 99.5 percent pure, by definition. Traditionally, investors have purchased gold bullion to put their dollars into a hard commodity when inflation was high because the price of gold tends to hold stable. In fact, it can increase in value during a recession when the value of the dollar may be decreasing. When you are considering investing in gold bullion, it is important to know the factors that govern your ability to both protect your assets and profit from the investment.
Supply and Demand of Bullion
Bullion, like all commodities, fluctuates in price due to supply and demand. Financial assets, like stocks and bonds, have a different relationship with price. They will rise in price when the underlying asset, such as the company issuing the stock, also rises in value. With gold bullion, the value of the asset itself is relatively constant. The change is due to the fluctuations in the amount of people that want to buy gold and how many people want to sell gold at any given moment. It is not possible to look at the history of gold like you would look at the history of a company in order to estimate its value. Instead, you must be prepared to watch market trends that may affect supply and demand.
Finding a Reputable Dealer
One of the challenges trading bullion is that only certain dealers hold this commodity. If you want to trade, you have to go to these individuals. Unless you are a gold expert, you may not know how to protect yourself from scams. Start by following some basic rules:
- Ensure your dealer has a physical office
- Ask for referrals from previous satisfied customers
- Work with someone local and meet in person when possible
- Use more than one dealer to protect yourself from a large loss if a single dealer fails you
Understanding Pricing Models
When you decide to purchase gold bullion, you will be quoted a spot price. This is the exact price the asset is valued at when you speak with the dealer. However, this price may fluctuate, and you may actually end up paying a future price on the gold bullion. Some traders quote a forward price, which is the cost it will take to deliver you the commodity at a certain date in the future. A forward price is commonly used if you are asking for direct delivery of the commodity to your person.
Storing Gold Bullion
One challenge you may face if you decide to actually obtain gold bullion is the ability to store the product. Very few locations have secure facilities to hold your asset that can also provide immediate access to transportation. The location should be able to move everything quickly, in case you ever need to trade the item immediately. Further, you will end up paying a high price to store your bullion in many locations.