Investment in Gold Bullion Bars

Gold Bars: Investment Basics – What, How and Where

KEY QUESTIONS

Why Invest in Gold Bullion Bars?why invest in gold bullion bars

If you’ve made the decision to invest in gold, why would you choose gold bullion bars over coins or rounds? Although there are many exceptions, gold bullion bars will typically have a slightly lower premium than bullion coins, especially cast (poured) bars as these have the simplest manufacturing process out of all bullion products.

Bars are truly universal and can be bought and sold at close to premium anywhere in the world.

Large 400oz bars apart, they are compact, easy to carry and store, easy to hide if required and at the end of the day there’s something almost magical about holding a gold bar in your hand.

Bullion bars are available in the widest range of sizes, from fractions of a gram all the way up to giant good delivery bars weighing in at 400oz – the larger bars offering some of the best value gold available to investors.

Whilst there are large coins available these are often collectors items and tend to come with a much higher premium.

Bars are easy to stack and efficient to store without the “wasted” space associated with circular coins and rounds – and lets face it when we think of bullion, most of us immediately picture bars.
 

Cast or Minted?

When buying bullion bars there’s a choice between cast and minted – and different buyers have a preference for one over the other. While cast bars are simply molten metal poured into a mold and then struck with a makers mark and other legal details, minted bars are made in a multi-step process.

cast gold bar or mintedFirst carefully measured blanks are made from a large sheet of gold, or cut from a long thin extruded or cast bar. These blanks are then fed into a stamping or pressing machine, forcing the blank between two negatively engraved formers which imprint the blank with a pattern, edging, and a display of fineness and makers mark. Patterns can be simple or ornate and flat areas typically have a polished smooth appearance. Bar serial numbers are either engraved or stamped after minting.

Some minted bars can be truly beautiful featuring ornate designs with UK Britannia bars and Swiss PAMP Fortunas carrying two of the most elaborate engravings – verging on collector quality.

Ornate bars, especially from such prestigious mints will normally carry a higher premium in comparison to plain cast generic bars from workaday refiners.

Although the purpose of investing is usually buying as low as possible, premium manufacturers bars will typically be easier to resell in any market than generic and command a higher price due to their desirability, often higher than spot. Dealers will seldom offer anything at spot or higher for generic bars.

Home stackers who gradually buy whatever bar is available at the lowest price will quickly develop a wide collection of varied designs and sizes, something which can make the investment process more fun and almost addictive – as hundreds of YouTube videos will attest to.

Secondary market bars (pre-owned) are as can be expected typically closer to spot than new bars offering investors some significant savings when buying at quantity.

A Word on Damage

Scratches and scuffs are inevitable and on cast bars these can be significant without reducing values – and in fact there are buyers who love collecting “vintage” bars for the patina they may carry.

On minted bars damage can detract from the value, because they spoil the appearance in quite an obvious way, so that even bars from premium manufacturers will only ever resell below spot.

Of course as an investor all you’re really interested in is gold content – and if you buy direct from dealers and vault with them – bars will be new and can be resold to the dealer at any point almost instantaneously. Because the dealer knows the bars and their full secure chain of custody they will often pay more at buyback than any other dealer and this is one of the main benefits of dealer vaulting.

Buying gold bullion bars is gold investing at it’s most basic – a simple and relatively affordable process where you can own a safe and solid investment at the lowest possible cost.

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Is Investing in Gold Bullion a Good Idea?is investing in gold bars a good idea

As we’ve established, gold bullion bars are easy to buy, easy to sell and will typically offer the lowest premium out of all weight-for-weight bullion products. Their ease of stacking and efficient footprint can make vaulting costs lower for bars than for coins, especially at higher dollar values.

Given gold’s use as a store of value and a protector of wealth, it makes sense to take the most efficient and cost effective route to that investment – gold bars.

In our book that makes investing in gold bullion a very good idea.

Are there any negatives to gold bars?

In some jurisdictions gold coins and more specifically legal tender gold coins can be exempt from Capital Gains Tax. This means when gold rises significantly in value and you come to resell you will avoid a tax bill. Not so with gold bars (there are a few exceptions – legal tender bullion bars but these are uncommon)

Although capital gains tax exempt coins can save you significant sums when you make a large gain on resale, their initial purchase price can be 5-10% higher than an equivalent generic bar, so you need to weigh up savings at purchase versus anticipated savings at sale.

Are Gold Bars a Safe Investment?are gold bullion bars a safe investment

Gold is regarded as a safe investment and gold bars are one of the most traded and universally accepted form of gold investment – therefore gold bars are indeed a safe investment.

But (there’s always a but) that’s not to say all gold bars are as they seem.

There are a growing number of fake gold bars coming onto the market – some are laughably obvious Chinese copies of popular bars like PAMP Suisse, Scotiabank and Royal Canadian Mint, bars that are allegedly meant as novelty gifts but can still be easy to fool newcomers looking for a bargain.
 

 
On the other hand there are sophisticated copies designed to defraud even experienced investors where a solid gold coating covers a tungsten core – this is because tungsten has a very similar density to gold so weights will seem correct.

In some cases genuine gold bars have cavities drilled out of them which are then filled with tungsten rods before being resealed with pure gold – much harder to spot and a trick that’s even caught out bullion banks.

Finally pure gold bars from little-known manufacturers usually in China or the Middle East are being stamped with the marks of major refiners to obtain a better price – a trick which is also being used to bring conflict gold and illegally trafficked gold into the market.

Yes you’re buying real gold – but the bar itself is an illegal copy or made from illegal gold and therefore buying it becomes an offense in most countries.

What to look out for

watch out for fake gold barsBe especially wary of good deals. Gold bars seldom sell at spot let alone below spot – so unless a well known dealer is having a loss-leading offer to bring in new customers, beware.

Because gold is in such demand, even a seller in a hurry will be able to get close to spot at any number of coin or pawn shops.

If a gold bar is available on sale to the public at more than 5% below gold’s market price then it’s a fake or a fraud – no exceptions

To be absolutely sure that your gold bars are a good investment it pays to only buy from a reputable source – either a major gold dealer, direct from the refiner or through a professional gold investment company.

It’s just not worth taking the chance to do otherwise.

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How Much do Gold Bars Cost?how much do gold bullion bars cost

Gold bars are a special investment commodity and in order to be treated in a tax advantaged way in many jurisdictions they must be priced close to the spot price of gold.

In reality legitimate gold bars will always sell (with a few exceptions) for more than spot due to the cost of mining, refining, minting, assay, certification, packaging, storage, insurance and transportation plus a small profit for the wholesaler.

Once at the retailer or bullion broker there needs to be an allowance made for business and marketing expenses and another small profit.

These built in costs and expenses per bar are more or less the same for large bars as they are for small and so when investing in gold bullion bars you will typically find the premiums on small bars are higher in relation to their unit price than on large bars. It’s basic math.

Further price differences can be found between the gold bars from different mints with some of the most respected mints carrying a higher premium on a like for like basis than those from smaller, less well known mints or on generic unbranded bars.

A 1kg bar from the UK’s Royal Mint is going to cost more than one from say the Scottsdale Mint in the US or a refinery like Kaloti in Dubai.
 

How does this translate into the real world?

The overall premiums on gold bullion bars can range from as little as 0.5% over spot for giant 400oz good delivery bars up to 50-60% on tiny 1g bars.

choice of gold bullion barsDealer premiums can often be reduced further by ordering multiples of an item allowing the dealer to share some of their wholesale discount with you due to economies of scale.

On the subject of premium brand and generic bars – premium branded bullion is typically easier to resell and can command a higher price than generic or unknown brand bars in the secondary market due to trust and the higher demand of known bars.

If you are following the self-buy and home storage route, this is definitely something to bear in mind when it comes time to for you to resell.

The following chart shows price premiums per bar size – and across different brands from generic to premium. These prices are taken from an average price calculated across 5 leading bullion e-commerce sites for comparison.
 

Average Premium By Bar Size for Branded, Generic and Bulk

Bar Size Premium Branded Generic Bar Bulk Buy
1g 59.0% 30.7% 15.2%
2.5g 37.3% 24.8%: 14.4%
5g 23.6% 12.8% 8.6%
10g 15.2% 9.5% 7.2%
1/2oz 10.7% 8.4% 5.7%
20g 10.6% 7.3% 5.1%
1oz 6.6% 4.3% 2.9%
50g 7.6% 4.6% 4.0%
100g 6.6% 3.9% 2.5%
250g 3.8% 3.4% 2.6%
10oz 6.4% 3.5% 2.9%
500g 3.3% 3.0% 2.4%
1kg (1000g) 2.8% 2.5% 2.0%
400oz 2.2% 0.8%

Key Takeaways:

  • Highest premium is 59% for a premium-branded 1g bar, lowest premium is 0.8% for bulk-bought 400oz bars.
  • The best buys for smaller to mid-scale investors are 1oz generic bars and 100g generic bars.
  • Anything smaller than 10g should be classified as a novelty or collectable as premiums are too high to make these bars a solid investment.

As can be seen buying gold even at budget e-commerce sites can come with a good range in premiums.

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What are Popular Gold Bar Sizes?what are gold bullions most popular sizes

The most common sized bar for large scale bullion investment is the 400oz good delivery bar. This is the bullion bar you see in movies, the bars held by governments, national banks, institutional investors and the most wealthy.

Although offering the lowest premiums and the most concentrated form of wealth gold can offer, these are hardly practical for most small to mid-scale investors and at well over half a million dollars per bar don’t adequately allow for selling fractions of your investment when needing smaller dollar values.

For most investors there’s a preference for a range of more practical smaller bars – the choice of which varies quite widely from country to country.

In the US the most popular sizes bought and sold by investors are the 1oz and 10oz bullion bars, although the 1000g or Kilobar (32.15 troy ounces) is growing in popularity thanks to it’s low premium and international appeal especially by investors with at least some offshore presence.

European Investors more typically buy bars using the metric system (with an exception being the ever popular 1oz bar) and the most commonly traded bars are kilobars, 500g, 250g, 100g and 50g bars alongside the 1oz.

China’s most popular gold bar is the kilobar and even Chinese central banks prefer the highly regular kilobar to the more traditional 400oz good delivery bar.

The Middle East and India prefer the kilobar and their own bar sizes measured in Tolas (1 Tola = 2.666 Troy Ounces) with the most common Tola bars being 1, 3, 5 and 10 Tolas.

As can be seen the most universal bar, popular with gold investors across the world is the 1000g/ 1kg kilo bar packing a whopping 32.15 oz of fine gold into a small, highly portable and easily stored unit.

For us however, the 1oz and 10oz bars remain kings in the USA in terms of value and liquidity.

 

What are Popular Gold Bar Brands?most popular bullion bar brands

Much like bar sizes, gold bar brand popularity varies by country although most investors in the West will be aware of the major brands across the US, Canada and Europe. Some European brands tend to carry a higher premium in America due to shipping costs and their comparative rarity.

APMEX

APMEX, Inc., are based in Oklahoma City, Oklahoma, and are the world’s largest online retailer of precious metals, having sold over $10 billion in precious metals since being founded in 1999. As well as being a bullion dealer selling a wide range of branded bars, APMEX produce their own popular range of gold bars in both metric (0.5g, 1g, 5g, 10g, 1000g) and imperial weights (1/2oz, 1oz, 5oz, 10oz) at 0.9999 fineness (99.99% pure gold).

Click Here to Expand List

 

Is There Tax on Gold Bars?tax on gold bullion bars

The tax investors pay on gold bars depend on which state the bar is bought and stored in as each of the 50 states can set it’s own level of sales tax.

While some states are zero-rated on investment grade bullion, other states can charge up to 10%. This basic state-wide tax is in addition to any local county or city sales tax.

As an example, in Alabama, the basic sales tax on bullion is 4% whereas residents in Mobile or Montgomery need to pay an additional 10% local rate giving a total state and county sales tax of 14%

Sticking with Alabama any investment bullion bought outside of state is subject to a “use tax” at the same rate as the sales tax.

This gives some US gold dealers and metals investors a big advantage over others based on their location.

Click Here to Display State Taxes

 

Capital Gains Tax on Gold Bullion

In America the IRS considers bullion to be both a Capital Asset and a Collectible, so Capital Gains Tax (CGT) will be payable on any gains made when bullion is sold, and this is set at a maximum of 28% (collectibles).

In reality the actual rate paid will vary depending on a number of factors including the seller’s income and the length of time the assets have been held.

To discuss specific CGT liabilities you should speak with a licensed accountant or tax specialist.

 

Can Gold Bars be held in an IRA?can gold bullion bars be held in an ira

The IRS now allows specific grades of investment bullion to be held in an IRA allowing for gold to be bought in a highly tax-advantaged way.

As can be expected from the IRS there are strict rules governing what metals can be bought and where they should be stored which we cover in detail in our Gold IRA section.

Gold bars for IRA use must meet minimum fineness requirements and be manufactured by a NYMEX or COMEX-approved refiner/assayer and should be ISO9001 Certified. The minimum purity should be .995 fine (99.5% pure gold) or greater.

Examples of some qualifying gold bars suitable for holding in an IRA include any size of:

Perth Mint .9999 fine bars
Credit Suisse .9999 fine bars
PAMP Suisse .9999 fine bars
Royal Canadian Mint .9999 fine bars
Ohio Precious Metals .9999 fine bars

For more details on Gold IRAs including specific advantages, rules and regulations click here.
 

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