What is Bullion?

Bullion is a crucial term for any investor to know. Investopedia defines the term as a precious metal, usually gold or silver, that is recognized as having at least 99.5% purity. The full range of precious metals that an investor can purchase includes:

• gold
• silver
• palladium
• platinum
• rhodium
• copper

When an investor purchases bullion, they are buying a tangible form of one of these metals.

Bullion is one of the primary forms of precious metals investing. If you're unfamiliar with this type of investment, we'll explore all the necessary information in the guide below!

The Different Types of Bullion

There are three types of bullion that investors can purchase:

• rounds
• bars
• coins

Bars are exactly what you might imagine. The metal comes in a bar where its price is determined by the weight of the bar. The more of the metal that is present, the more value the bar holds.

Coins are also fairly self-explanatory. In fact, for much of U.S. history, many of our coin currencies used high amounts of precious metals.

As a result, many of those coins are valuable collectibles for numismatists. The typical precious metals exchange will offer collectible coins with a great deal of metal purity.

Rounds differ from coins primarily in where they originate from. Coins are issued by governments and come from a government mint, such as the U.S. Mint in Philadelphia.

Rounds, however, are a standardized bullion item that are minted by private mints. They come in several designs, which may or may not resemble traditional coin designs. While there are some additional differences between coins and rounds, this is the crucial one.

How Is Bullion Used in Investment?

Bullion has three uses for investors:

• store of value
• portfolio diversification
• speculation

We'll explore these three uses in more detail below.

Store of Value

Bullion serves as a reliable store of value for investors. What this means is that people invest in precious metals as a means of hedging against inflation.

Often, people invest in precious metals during times of economic uncertainty or currency devaluation. This impulse comes from precious metals' inherent value.

The American economy runs on the use of a fiat currency (the U.S. dollar) as the only legal tender. The U.S. dollar gets its value from trust in the government that prints and mints the money. When people trust the government and money, they are willing to spend the money.

However, in times of high interest rates or inflation, the dollar can lose value. Moreover, the American economy has inflation built into its system. Regardless of policy, inflation will cause the dollar to lose value gradually over the years.

Precious metals, however, derive their value from a much simpler principle: supply and demand. The supply of precious metals is not high; the demand, however, is very high.

While this overview is very simplified, the basic principle does apply. It has an inherent value that fiat currencies like the dollar do not have.

Portfolio Diversification

Bullion offers investors several benefits by helping to diversify their portfolios. Precious metals usually have a low correlation to the stock market. This means that when stocks and bonds are volatile, precious metals usually remain stable.

Diversifying with bullion helps mitigate risk and enhance overall stability. Sometimes, this investment can gain significant value over time, rather than merely hedging against volatility.

According to the Silver Institute, silver's price rose 21% in 2024. The trend has continued in 2025, with silver hitting $60 for the first time in history. This new record means the metal has doubled in price between the beginning of 2024 and the end of 2025.

None of this is to say that such a trend is normative in precious metals. It simply suggests that precious metals can be a worthwhile investment in conjunction with stocks and bonds. After all, why put all your eggs in one basket?

Speculation

Speculative trading usually involves buying and selling bullion derivatives. Bullion derivatives are financial contracts that get their value from gold or silver prices, not the physical metal itself.

There are two primary bullion derivatives:

• futures contracts
• options

A futures contract is an agreement to buy or sell gold/silver at a set price on a future date. Traders use it to bet on where the price will be later.

Options refer to a contract that gives you the right to buy or sell gold/silver at a certain price before a certain date. Buyers pay a premium to secure the right to trade in this way.

Some investors engage in speculative bullion trading to profit from short-term price fluctuations in the precious metals markets. Speculation differs from long-term investments by seeking a quick route to wealth and gain, rather than long-term growth and stability.

What Are the Tax Implications of Investing in Bullion?

Despite having once been a form of currency in the United States, bullion is now seen as a "collectible." This status has a direct impact on how bullion gets taxed.

First, bullion is taxed as capital gains. Your long-term gains (gains held over a year) face a higher max rate (roughly 28%) than other assets (max 20%). Short-term gains (held under a year) are taxed at your higher ordinary income rate.

Other factors may vary, such as state tax rates. The various states have different laws regarding bullion, with some recognizing it as legal tender (and thereby not taxed) while others tax it more heavily. The Net Investment Income Tax and potential estate taxes also apply.

There are, however, ways to hold bullion for tax benefits. There are two primary ways to do this:

• Self-Directed IRA (SDIRA)
• Gold ETFs (Gold Exchange-Traded Funds)

A self-directed IRA with IRS-approved precious metals (99.5% gold, 99.9% silver bars/coins) allows for tax-deferred growth.

Similarly, Gold Exchange-Traded Funds are taxed like stocks (0/15/20% rates) and avoid the "collectible" status, but may have other tax considerations like foreign taxes on dividends.

Since tax treatment can vary based on your situation, it is best to consult a qualified tax professional before making investment decisions.

What Is the London Bullion Market?

The London Bullion Market (LBM) is the world's leading wholesale, over-the-counter market for trading physical gold coins and silver coins. This market runs by standards set by the London Bullion Market Association.

This market has a stellar reputation in the precious metals world. It is known for the following traits:

• Good delivery list of accredited refiners
• Ensuring bar quality
• Setting authentic daily prices (Gold/Silver Prices) through auctions, providing transparency and integrity for global precious metals trading

The London Bullion Market is far from the only place where you can purchase bullion. However, it has a tremendous influence in the precious metals world, including by setting those authentic daily prices.

Consider Whether Bullion is Right for Your Portfolio

Bullion is an incredibly useful investment. It has appeal for many types of investors, from those wishing to hedge their portfolios against inflation to numismatists who love historic coins.

One of the great draws of gold and silver coins is their tangibility. If you purchase a silver eagle coin, for example, it's an investment that you can hold in your hand. However, that also makes it a potential liability, since such investments can attract thieves.

When you purchase any kind of bullion asset, it is best to look into a storage vault. Sometimes, a precious metals exchange offers security for investments by keeping your acquisitions in a safe storage space.

Whether you buy silver bars or gold coins, make sure that it fits your investment goals!