Bullion or metal bullion is defined as any precious metal, such as gold, silver, palladium, platinum etc which is in a state where its value is dependent on its metal content and not on its form (that is bars, coins etc).

Since time immemorial gold or any other types of bullion were counted as a safety or hedge against inflation. Nowadays though gold seems to have lost a little of its sheen it is still valued as a form of insurance.

The Gold Standard

The main cause behind sky high bullion prices today is the vast amounts of gold (and other precious metals) held by the Central Banks of most countries. This is a sort of a legacy from the gold standard which existed in the early nineteenth to late twentieth century time frame.

The gold standard is a monetary system in which paper money is freely convertible into a fixed amount of gold i.e. the value of money is backed by gold.

England became the first country to officially adopt a gold standard, in 1821. The manifold increase in global transactions and output brought large discoveries of gold, which helped the gold standard remain intact well into the next century. As all trade instabilities between nations were settled with gold, governments would stockpile gold for more difficult times.

The Great Depression in the 1930s, war debts, overextended commodity prices and other economic crisis forced most countries to abandon the gold standard. However, those stockpiles still exist today.

Gold is also said to be a very effective form of insurance during economic disasters like hyperinflation, or a state of accelerating inflation where paper money loses its value.

Gold Retailing In Banks

These days more and more banks are retailing gold and gold bullion coins. These coins are meant for corporates and individuals as gift options. The coins offered come in coins of dimensions 2 to 500 grams and a 1kg bar. These coins are very popular during the festive seasons especially the pre and post diwali season. As these coins are of 24 carat gold with 99.9% purity, these are often preferred to normal 22 carat gold coins offered by most jewellers. These coins are sourced from the PAMP refinery of Switzerland and are packaged in tamper-proof packet with an ASSAY Certificate.

Though these banks seemingly offer the best deals when it comes to buying gold coins it must be noted that the banks do not buy back these coins and selling it to a jeweller would involve incurring a loss. Say, for example, gold is trading at Rs 940 per gram on a given day. A 5 gram gold coin would cost you about Rs 5700(depending on the bank you bought it from) while selling the same coin to the jeweller would earn you an amount of Rs 4700(940*5=4700).

Converting the bank coin to jewellery would mean another additional investment of Rs 60-200 per gram. Besides the gold coin you buy would be of 24 carats while the gold used for making ornaments is of 22 carats. Gold in its purest from is not as malleable its poorer cousin silver and thus it's often mixed with silver and copper to enable easy molding in to jewellery. A gold ornament made by hallmarked jewelry must always carry a BIS mark of 91.6%. This indicates that the gold used has a purity of 91.6%.