What is the meaning of bullion market?

In the world of gold investment, a term you will often come across is ‘bullion market’, but what does this actually mean?

The bullion market refers to the ‘place’ where the over-the-counter trade of gold and silver bullion takes place. The bullion market is open 23 hours per day, Monday to Friday. The majority of trade takes place in London between members of the London Bullion Market Association (LBMA), comprised mainly of refiners, banks, and bullion dealers.

The bullion market is administrated by the London Bullion Market Association, who are responsible for the governance and regulation of the precious metals trade, in areas such as refining quality standards, trading practices and the official pricing of gold.

Click here for more information about the LBMA.

Click here to learn more about the gold price.

There are, of course, other ways to invest in gold and silver. Financial products such as gold or silver ETFs and futures offer investors an opportunity to bet on precious metals without actually having to store bullion, therefore avoiding some of the costs and commitments associated with the over-the-counter bullion market. These forms of investment often appeal to investors who are attracted by the lower premiums above spot price and the fact that gold-backed financial assets do not need to be physically stored.

However, there is a risk involved in this method of investing in gold. While physical, allocated gold is a tangible asset that is the investor’s own physical property these alternative forms of investment are essentially contracts whose intrinsic value is no higher than that of the paper they are written on. In the event that the bank or institution offering these products suffers bankruptcy, they will not be able to honour the contracts they have issued. When so many investors in gold are attracted to the precious metal’s effectiveness as a hedge against inflation and economic turbulence, it makes sense to opt for the gold investment that can truly offer this - gold bullion.