The term “gold bullion” is frequently misunderstood. You will hear people refer to various things as gold bullion. One person will hold a small gold bar in his hand and tell you that it is gold bullion; another person will show you a pile of coins and say that they are a bullion. Yet another person will hold out a single gold coin and tell you that it is a gold bullion coin. In truth, all of them are right. It is actually a variety of things. The one aspect all these things have in common is that they are valued for their weight and purity level.
A half-ounce gold coin can have a currency value of $100. If you were to take that coin to a store and use it to purchase goods, it would, in effect, have the same purchasing power of a $100 bill. In fact, if you took it to a bank and told them you wanted to convert it to paper currency, a $100 bill would be exactly what the teller would give you. Assume that this coin has a level of purity of 98%. This same coin would have a gold bullion value of about $500. This value is not based upon what the coin is worth in circulation; instead, it is derived from its worth on the gold market. Since gold is selling at a spot price around $1,000 an ounce, this half-ounce coin of high purity would have a value in the range of $500.
Gold bullion is also available in the form of gold bars, also known as ingots. Obviously, these bars do not have any currency value. They are worth only what their weight and purity will bring on the open market. These bars come in a variety of sizes and can be acquired even if an investor has a smaller budget. This may come as a shock to anyone who has seen the “Fort Knox” style bars on television and assumed that was the only size of gold bullion available.
This brings up the next question, should you purchase gold bullion in the form of coins or bars? That matter is entirely up to you. The only difference is that buying gold coins a person may pay more that their market value due to their rarity. This extra investment can work to the advantage if that particular type of gold becomes rarer during the time of holding it.