What is Bullion & how it works?

Bullion

Gold is one of the finest rare precious metals found on the globe. Gold is able to retain its value & become an excellent investment option amongst the normal people or the investors. 

Because it is scarce and has been historically used as a stable form of currency, along with it’s rare chemical property. And also the price of gold often rises during economic hardship or periods of high inflation. These reasons add up to why people are investing in Gold Bullion.

So the question is “What is Gold Bullion?”

Once raw gold is refined to remove impurities, they are developed into bars or ingots. (995k) pure gold bars or ingots that result from this process are what refers to as “Bullion”. To refer as gold bullion, bar or ingot has to be at least 99.5% pure. These bars or ingots are then stored in a bullion vault for safekeeping.

The government body that mints bullion authorises the weight and purity of each bar or ingot. Therefore, gold bullion is a precious metal that is used as an investment and store of value. It is typically in bar or ingot form and contains at least 99.5% pure gold, it can go further like 99.99% in some case.

  • The bank holds gold bullions in its reserves to ensure that it can always pay off its debts and support the economy. 
  • To raise funds, the central bank lends gold from its bullion reserves at a low interest rate to bullion banks. 
  • This allows the banks to use the gold to support the economy without having to worry about raising the funds themselves.

What is the gold bullion market?

The bullion market is a place where you can trade gold that meets the purity standards of the bullion industry. It’s an OTC market that operates 24 hours a day, and usually differs from one country to the next. 

The bullion market has a high trade volume because it contains the vast majority of bullion trading prices on any given day. The main drivers of the market are central banks, commercial banks, institutional investors, and retail investors. 

Central banks use bullion to hedge against currency risks and to diversify their portfolios. Commercial banks use bullion to hedge against credit risks. Institutional investors use bullion as a store of value and a hedge against inflation.

Gold bullion international market types

So, basically there are 2 markets for the bullion industry the spot market and futures markets.

A spot market is one where gold can be delivered immediately, whereas a futures market is one where gold can be delivered at a future time. 

> There are two major gold bullion markets in the world – the London Bullion Market and the Dubai Gold & Commodities Exchange.

As the world’s largest and most liquid gold exchange, the London Bullion Market offers gold trades throughout the day. LBMA (London Bullion Market Association) governs the organization from its headquarters in the United Kingdom.

As the Middle East’s largest gold market, Dubai Gold & Commodities Exchange is the largest. Gold is delivered on the Exchange in a physically settled market.

How the bullion market works?

In every country, there are rules and regulations governing the bullion industry and the way trading is conducted. These rules and regulations vary from country to country, and it is important for those involved in the bullion industry to be aware of them. 

Depending on the country, the rules and regulations governing the bullion industry can have a significant impact on the way trading is conducted. In some countries, there may be limits on the amount of gold that can be traded, or the way in which it can be traded. 

In other countries, there may be different rules governing the trade of silver or other precious metals. It is important for those involved in the bullion industry to be aware of the rules and regulations governing the trade in their country, as this can have a significant impact on their business.

How to begin trading in gold bullion?

You can buy gold bullion in the following ways:

  • Physical Gold Bullion – Physical gold bullions are bullion bars and coins stored in accredited vaults or personal lockers. Bullion dealers sell physical bars and coins.
  • Exchange Traded Funds (ETFs) – Gold ETFs have gold certificates as their underlying assets, rather than physical gold. If you’d like to invest in ETF funds, you can use a brokerage account or an Individual Retirement Account (IRA) account, just as you’d invest in stocks
  • Future Contracts – There is nothing more simple than a futures contract. It is an agreement between two parties to buy or sell a certain asset at a later date. Gold is delivered to the buyer at the end of the contract term. Up until that point, buyers do not possess ownership of gold.

There are many ways to begin trading in the bullion market have Gold & Silver in your investment portfolio. You just have to get known to the renowned bullion dealer in your country, in UAE there is Ashoka Global.

Conclusion

Ultimately, gold bullion is seen as a low-risk investment and a hedge against inflation by investors. In addition to providing investors and jewelers with competitive prices, gold bullions are also very useful for investors. 

In any case, you should only purchase gold bullion bars from reputable dealers. Many gold bullion traders in Dubai are known for continuously saving and investing in gold, thus earning good profits. Dubai is regarded as a gold trading hub.

By Michael Caine

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