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The Bullion Purchasers Guide to the Market
The Gold bullion market is mainly split between the LBMA in London and COMEX in New York. Basically the market consists of "Over The Counter" trades of large quantities of Gold in the form of bullion bars, typically weighing 1000 ounces each.
The daily workings of the system, particularly in London, are not transparent and the market is restricted to a number of individuals and institutions. Due to the size and value of individual transactions, which have to be "settled" in 48 hours, this market is unavailable to all but the wealthiest of participants.
Spot Price information, produced by these and other subsidiary markets, is an amalgamated set of data taken from the global bullion markets but primarily set by trades in London and/or New York. An additional price guide, the London Gold Fix, is released twice each day that the London Market is open. Together these price indicators form the basis for the fluctuating global price of Gold which can be accessed by the general public.
Silver markets produce similar Spot Prices, supported by a daily London Silver Fix produced at midday of every trading day.
Because the major bullion markets trade in such large quantities and trade metal with a provenance which sometimes dates back for centuries, this is the "cheapest" way to trade Precious Metals.
Additional costs involved in fashioning, testing, transporting and storing metal in smaller quantities, outside the bullion market system, means that there will always be a percentage or "premium" added to the Spot Price when pricing smaller transactions involving smaller bars and coins which are available to investors and the general public.
What To Buy
There are several ways in which Gold and Silver can be bought and possessed:
- Bullion is a term applied to bulk quantities of a Precious Metal which can take the form of bars, coins and rounds.
- Investment Gold Bars or Wafers are exempt from VAT provided that they have a Gold purity of at least 995 parts in 1000.
- Investment Gold Coins are exempt from VAT provided that they were minted after 1800 with a Gold purity of at least 900 parts in 1000. Such coins must be or have been legal tender in their country of origin and are normally sold at a price that does not exceed 180% of the value of the Gold contained in the coin. Exemption from Capital Gains Tax is given to UK Investment Gold Coins such as the Sovereign and Britannia which have a face value and are therefore legal tender.
- Investment Gold Rounds may appear to be coins but because they have never been legal tender, most being produced by private mints, they are categorized in the same way as bars and wafers.
- Investment Silver may be bought as bars, wafers, rounds or coins but is always subject to VAT when bought in the UK. UK Investment Silver coins such as the Silver Britannia are Capital Gains Tax free.
- Gold and Silver Jewellery may be seen as investments but are generally a very expensive way to buy Gold and Silver due to high labour and production costs and the addition of VAT.
When to Buy and Sell
The question of when to buy bullion often confuses newcomers to the bullion markets.
Over the last decade the bullion markets have tended to be less volatile than other investments and the timing of purchases should not be of particular concern.
Day to day prices can fluctuate but bullion ownership is generally seen as a long term prospect to protect wealth for the future and so the major factor dictating when to buy is when you can afford to buy. Small gains can be made by studying the market fluctuations and buying at just the point when prices bottom out before rising but over the long term such small gains tend to be insignificant.
How and Where to Sell
The decision as to when you should sell your bullion will tend to be influenced by your financial needs and plans at any given time. Watch the markets for a few days to get a feel for how prices are moving. Some bullion dealers will be prepared to pay a small premium in addition to the market price for customers wishing to sell bullion that was originally purchased from that dealer. Shop around and speak to a number of bullion dealers as this will allow you to get a feel for the businesses that are buying bullion and the processes and prices that they offer.