Many experts will tell you that bullion bars offer the lowest premiums and are the best way to invest in precious metals. In fact, we’ve said the same thing ourselves and firmly believe that if you’re only interested in the metal itself, if you want to profit from gold/silver only and if you have no interest in collectible coins or intricate designs, then bullion bars are the way to go.
But why is this, what do bullion bars have that bullion coins do not, and what dictates the value of the premiums that are attached to them?
Gold and silver coins, whether they are simple bullion coins or complex commemorative coins, require a lot more care and attention than gold and silver bars do. The process for creating many bullion bars is to liquify the metal, pour it into a mold, pop it out when it has cooled and then sell it on. However, coins need to be polished and cleaned, they need to be struck individually, they need to have several finishes applied and many of them also need to be encased in protective slabs. This process takes more time and it costs more money, and that’s without even factoring in the time it takes to design the dies and to pay those designers.
So, the reason you are paying more for a coin than you are for a bar, is because that extra money is going towards paying the wages of the people who design and strike these coins, and it is going towards paying for the extra time and money that is spent creating them.
If you’re investing in a bullion coin or a commemorative coin, you’re investing in a lot more than a quantity of gold, silver or platinum. You’re investing in something that was painstakingly created. However, when you invest in a bullion bar, you’re investing in something that is all about the precious metal content, something that was designed to be simple and quick, something that derives its value from the product and not the process.
The amount of gold or silver that you buy also plays a huge role in deciphering how much of a premium you will pay. With coins, there is a limit to how big they can be. 1 kilo coins do exist, but the complicated processes involved with creating these coins means that the mint are not able to sell them at a hugely reduced rate.
The same can not be said for precious metal bars though. In fact, the process of creating smaller bars is often more complicated and time consuming that the process of creating larger ones. After all, smaller bars are harder to produce, transport and package, and as far as the manufacturing process is concerned, the only difference between a 1 ounce bar and a 100 ounce bar, at least from the perspective of the mint, is the size of the mold that the molten metal is poured into.
So, if you want to reduce the premium on gold/silver bars even further, then look to buy larger sizes. You can also save money if you buy a large number of smaller bars, but this discount is not as great as the discount you can get from buying one large bar. After all, it’s easier for the mint to produce 1 bar of 100 ounces than 100 bars of 1 ounce.
Of course, not all bars have low premiums. Minted bars often undergo similar processes to coins. Designers spend some time creating a layout and a pattern for the bar. Dies are created so they can be struck. A lot of care and attention is paid to the strike, and the minted bars are very carefully handled and packaged. And this is before you factor in the processes involved with casting, forming and cutting sheets of metal so that bars of a certain width, length and thickness can be created.
The premiums attached to minted bars differ depending on the mint that creates them. In some instances you will pay a very small premium, getting minted fine gold or fine silver for a little over spot. Such is the case with mints that create bars with simplistic designs. However, there are also mints like PAMP, who produce some of the highest quality gold bars on the market, with intricate designs, individual assay cards, protective slabs and a guarantee that your bar has been minted by one of the biggest names in precious metals.