invest in gold and silver

Gold bars

Gold bars are the most traditional method of investing in gold. They are suitable for many banking and investment transactions and they are highly portable.

The most popular bars are one troy ounce gold bars (1 oz.), but you can also find 1g, 10g, 100g, 10 oz. or even 1 kg bars. 400 troy ounces (roughly 12.5 kg) bars are also quite popular. The heaviest gold bar in the world is the 250 kg, 999.9 purity gold bar found in the Gold Museum in Izu, Japan. It is 19.5 cm wide, 40.5 cm long and 16 cm high and was melted in 2005 by Mitsubishi. In Asia the weight of gold is often quoted in measures other than grams or ounces. In Chinese-speaking countries the tael is a popular measure, which in China is equal to 31.25 g, in Hong Kong and Singapore to 37.79 g and in Taiwan to 37.5 g. Another measure of gold weight, popular in Southeast Asia is the tola, which is defined as 3/8 of a troy ounce. Although today the metric system is very popular there, gold bars weighting 1 tola are still sold in Bangladesh, India, Pakistan, Nepal and Singapore.

Investing in gold bars has its advantages and disadvantages. The main advantage of investing in gold in physical form is that gold bars are tangible, not virtual. They are not a liability, a share or any kind of security. In contrast to futures contracts or mutual funds, the value of a gold bar will never fall to zero. To the contrary, if a futures exchange offering gold contracts or a mutual fund investing in gold goes bankrupt, the value of a gold bar may skyrocket, as investors buy them as a safe haven.

Another advantage of gold bars is the fact that they are sold with lower margin than bullion coins of the same weight. This is because of unit production costs, which decrease as the weight of the bar increases, as well as the expensive process of producing perfectly round coins. It is more profitable to buy heavier gold bars. The heavier the bar, the closer its price to the gold price on world markets. On the other hand, as the weight of the gold bar increases, its liquidity and elasticity decreases. If we have a 1 kg gold bar and want to sell only 100g of gold, we will have to sell the whole bar.

In order to minimize production costs the acceptable weight of gold bars is an interval, not an exact number. For example the weight of a 400-troy-ounces gold bar may not be equal to 400 troy ounces and may actually be 404 ounces. For bullion coins the quoted weight is its real weight. A one-troy-ounce gold coin weighs exactly one ounce.

Investing in gold bars involves transportation or storage costs and various commissions. There may be a fee charged by the bank if we choose to keep them there. Despite what one may think, keeping bars in a safe at home is not entirely cost-free either. It may involve higher insurance rates. It also involves a higher risk of burglary and theft.

When considering buying gold in physical form one has to pay attention to the spread between the bid and offer prices. The greater the spread, the more expensive the gold bar and less cost-effective its purchase. The price of a gold bar is also influenced by the reputation of the mint it comes from. Bars produced by reputed mints may have higher prices, but we can be sure of their authenticity and high quality. The most popular mints producing gold bars include Umicore, Degussa, Credit Suisse and Argor-Heraeus, owned by the Swiss bank UBS. According to Gold Bars Worldwide there are about 110 official gold bar producers in the world, located in 28 countries.

One of the most serious problems with investing in physical gold is liquidity. Many of the firms selling bars do not buy them back – they only sell them. There is also the risk of buying fake gold bars. One way to avoid this risk is to buy gold from credible sources, like the London Bullion Market (LBMA). Gold sold on the LBMA comes from credible sources, known as “the chain of integrity”. Bars that are not from “the chain of integrity” are melted before they can be stored in LBMA. One way to avoid buying fake gold bars is to buy bars called Kinebars. These are bars with Kinegram melted in them. Kinegram is a diffractive security device. It is not a hologram; it displays only a flat diffractive design. Gold is distinguished by higher density than the vast majority of other metals, making it quite easy to detect counterfeit bars by their lighter weight.

Where can you buy gold bars?

One way to buy gold bars is directly from the refineries and mints that make them. This is popular among investors buying larger amounts of gold. For individual investors a better way of purchasing gold is to buy it from so-called “dealers”. These are the firms that deliver gold on local markets and to individual investors. They buy large amounts of bars directly from refineries and mints and then resell them. Many banks, including Commerzbank, Credit Suisse, UBS or J.P. Morgan Chase, are dealer firms.

Gold can also be traded on gold exchanges. The most popular ones include LBMA, the New York Mercantile Exchange (NYMEX) or the Tokyo Commodity Exchange (TOCOM). The biggest is the London exchange. Although the global gold market is largely dispersed, the vast majority of wholesale transactions take place in London.

Gold bars are often also sold by central banks or even commercial banks. They can also be purchased on auction platforms, but this involves a higher risk of buying counterfeited bars.

Where can you buy gold bars in the USA or on the global market? The most popular U.S. internet sites offering gold bars include:

  • OnlyGold.com
  • GoldLine.com
  • UKGoldBullion.co.uk
  • GoldBullionReserve.com
  • Gold-Bullion.org
  • Monex.com

Dear Sunshine Profits,

gold and silver investors MARCH 15TH, 2011
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