Investment in gold bullion is considered speculative. Gold bullion prices can be influenced by a variety of global economic, financial, and political factors and may fluctuate substantially over short periods of time and be more volatile than other types of investments. Economic, political, or other conditions affecting one or more of the major sources of gold bullion could have a substantial effect on supply and demand in countries throughout the world. The market for gold bullion is relatively limited and is unregulated. Additionally, the majority of gold bullion producers are concentrated in countries that have the potential for instability. Economic and political conditions in those countries may have a direct effect on the production and marketing of gold bullion and on sales of central bank holdings of gold bullion, if any. The price of gold bullion has fluctuated widely over the past several years and may be affected by global gold bullion supply and demand, which is influenced by such factors as forward selling by gold bullion producers, purchases made by gold bullion producers to unwind gold bullion hedge positions, central bank gold bullion purchases and sales, and production and cost levels in major gold bullion producing countries; investors’ expectations with respect to the rate of inflation; currency exchange rates; interest rates; investment and trading activities of hedge funds and commodity funds; and global or regional political, economic or financial events and situations.
Gold bullion does not generate income, unless loaned and its returns are from gains or losses realized upon sale. Investments in gold bullion can present concerns such as delivery, storage, and maintenance, possible illiquidity, and the unavailability of accurate market valuations. Furthermore, gold bullion investors may encounter storage and transaction costs in connection with their ownership of gold bullion that may be higher than the costs attendant to the purchase, holding, and disposition of securities of companies engaged in gold bullion related businesses. The price of gold bullion, however, is less subject to local and company specific factors than securities of individual companies engaged in gold bullion related businesses. As a result, gold bullion may be more or less volatile in price than securities of companies engaged in gold bullion related businesses. There is no assurance that gold bullion will maintain its long term value in terms of purchasing power in the future.
Gold bullion exchange traded funds (ETFs) represent an easy way to gain exposure to the gold bullion price without the inconvenience of storing physical gold bullion. Typically, a small commission is charged for trading in gold bullion ETFs and a small annual storage fee is charged. The annual expenses of gold bullion ETFs include gold bullion storage, insurance, and management fees which are charged by selling a small amount of gold bullion represented by each ETF unit, so the amount of gold bullion in each unit will gradually decline over time. In some countries, gold bullion ETFs represent a way to avoid the sales tax or the VAT which would apply to physical gold bullion coins and gold bullion bars.
Buying gold bullion coins is a popular way of holding gold bullion. Typically, gold bullion coins are priced according to their weight with little or no premium above the gold bullion price. Among the most popular gold bullion coins are the South African gold bullion Krugerrand, the Canadian gold bullion Maple Leaf, the American gold bullion Gold Eagle and Gold Buffalo, and the Australian gold bullion Gold Nugget, all of which contain exactly one troy ounce of gold bullion each. Another popular one ounce gold bullion coin is the Austrian gold bullion Philharmonic.
The most traditional way of investing in gold is by buying gold bullion. In some countries, like Argentina, Austria, Liechtenstein, and Switzerland, gold bullion can be bought and sold “over the counter” at many banks. An investor can also contact a gold bullion dealer who will provide the same service. Gold bullion is available in various sizes. For example, in Europe, gold bullion would typically be in 12.5kg or 1kg gold bullion bars (1kg = 32.15072 Troy ounces), although many other weights exist, such as the Tael, 10oz, 1oz gold bullion bar, 10g, or 1Tola. Gold bullion can be held either directly or indirectly. Because of the many difficulties of transporting and storing gold bullion, a popular method of investing in gold bullion for the small investor is via allocated holdings using a gold bullion account.
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