Bullion Bars Versus Bullion Coins. What’s the Difference?

Bullion is the first pillar in a balanced precious metals portfolio. Bullion is any metal valued by its weight. For example, an ounce of gold or a kilo of silver references the weight to reveal the value. The value of bullion will be the weight in ounces times the spot price. If someone has 5 ounces of gold and the spot price is $1,800, the gold is worth $9,000 (5 x $1800). Since its weight values it, its shape becomes irrelevant. It could be a bar, a round, a sovereign coin, jewelry, artwork, or even a gold tooth. 

Sovereign governments, like the U.S., Canada, England, and Australia, release bullion coins in monetary denominations. For example, the Silver American Eagle (SAE) coin is legal tender and has a monetary denomination of $1. The silver is worth significantly more than $1. It isn't wise to use an SAE to buy a hamburger from the dollar menu, but you could if you wanted to. 

Private manufacturers also manufacture bullion products in bars and rounds. Bars come in many weights, from 1-gram  ingots to kilo bars and even larger like the 400-ounce bricks famous in movies. Rounds will have some similarities to coins in shape, weight, and appearance, but also some important distinctions. Coins issued by a government have a date and a monetary denomination. 

Many people believe the way to buy bullion is only to get the cheapest option available. The U.S. Gold Bureau frequently has promotions, offering low-price options. The low-price strategy has many merits, but it is prudent also to consider factors beyond price. Taxes, settlement, recognition, value at buyback, and practicality in a barter/trade scenario should also be a part of the decision. Private and sovereign bullion protects your purchasing power. So, which is better? It depends on many factors. Some factors include what you want to accomplish, the amount of money you want to protect, your investment style, investment horizon, and personal preferences.

In general, bullion is a great asset for protecting purchasing power. First, it is highly liquid, making it a strong strategy for storing value. Many people have legitimate concerns about the economy and banking system and prefer to keep their wealth close at hand. However, if they need cash in a hurry, they want an easy-to-liquidate asset, like bullion. Second, bullion is liquid everywhere in every currency. If you find yourself in Timbuktu needing cash but don't speak the language, it doesn't matter. Bullion will have the same value there as here. Bullion pays according to the spot price, which is an international number. Everyone knows what a bar of gold is. Third, bullion will be well-suited for any transaction if the need arises to buy an existing or new currency, i.e., the Dollar collapses. Fourth, in a worst-case scenario, bullion could be used for transactions or barter. Sovereign and private bullion offer all these protections. However, there are advantages to choosing one over the other.

Sovereign coins from the U.S. Mint have the most favorable tax reporting requirements. The IRS considers American coins currency and does not require a 1099. Sovereign coins from some foreign countries will have a less favorable reporting requirement than private bullion. The chart shows current broker reporting requirements and is only to assist you in becoming familiar with the requirements. 

The traditional position has been that sovereign coins would be more widely accepted during a barter/trade scenario than private mints. The reasoning is that people would trust and feel more comfortable transacting with a recognizable Silver American Eagle or Canadian Maple Leaf than a private round with unknown origins and purity. There is a high probability that this line of thinking is correct. However, there is another way to look at it.

In a barter/trade scenario, it is hard to say what people will want or need. Some people may want nothing to do with a sovereign coin if they hold hostility to that government for contributing to the disasters that led to the barter/trade scenario. There may be just as many people unwilling to trade sovereign coins as they prefer the sovereigns. People buy bullion for a barter/trade scenario as part of a plan to prepare for anything. The best strategy for a barter/trade scenario is sovereign and private bullion as part of a balanced portfolio to be prepared to trade with everyone.

Many people only consider the price when buying. It is wiser to consider buying and selling transaction costs to ensure you are paying the lowest price. Unfortunately, many dealers exploit this consumer behavior by selling for a few dollars less but charging a 10% "restocking" fee when you sell it back. You may save $5 on the front end and lose $180 on the back end. The U.S. Gold Bureau does not charge a restocking fee or hidden fees when you sell your metals back. 

Everyone needs some bullion. It is the very first pillar of precious metals investing. Learn more about the other pillars of precious metals investing here.

Call your precious metal expert for a free consultation.

(800) 775-3504