Basic knowledge: Bars and coins made from precious metals
Anyone wishing to invest in physical precious metals without professional support must know all the most important technical terms, be able to differentiate weight units and fineness, and understand the advantages and disadvantages of bars or coins. A grasp of these essentials will help you pick the best investments and distinguish genuine opportunities from fake offers.
This article is intended to help inexperienced investors, especially newcomers to the physical investment market, to gain a comprehensive overview of the world of precious metals. Collectors and experienced investors can also use this summary for reference, or to supplement their present background knowledge.
© Erwin Wodicka - stock.adobe.com
What investment products are available?
While some opt to invest their capital in jewellery, this article is primarily about classic investment products made from precious metals – predominantly bars and coins produced exclusively for investment purposes. With the exception of just a few historical examples, circulation coins are not considered investment coins. You can find out more about this in the sections describing the production of bars and coins.
There are basically four precious metals – gold, silver, platinum and palladium – widely considered suitable for the preservation of a capital investment. However, the two ‘grey’ metals (platinum and palladium) require a higher level of specialist knowledge and thus are generally regarded as niche products. Gold itself, with a few exceptions, is used exclusively for investment products and jewellery, while the other precious metals are in high demand from the industrial sector. The same also applies to copper and rare earths as well as granular products.
Weights and weight units
A brief look around the precious metal market will quickly reveal that not only are there many different types on offer, they also differ in size. The units of measurement employed to describe and distinguish investment products will differ according to the origin of the bars or coins. Weight descriptors are given either in (troy) ounces or grams/kilograms, and to aid rapid and accurate differentiation this information is usually found directly on the product itself.
One troy ounce of precious metal weighs exactly 31.103468 grams. This same measurement is also used for the large standard bars deposited by the central banks to secure their own capital. A standard silver bar is 1,000 ounces (around 31 kg), while a standard gold bar is 400 ounces (around 12 kg). Nevertheless, in some cases such bars can significantly deviate from the ‘standard’ weights, which is why they are not considered a suitable product for private investors.
However, precious metal bars are available in all weight classes from 1 gram to 15 kilograms, and in many ounce sizes too. Gold bars of 100 or 250 grams and silver bars of 500 grams or 1 kilogram are particularly popular with investors. One ounce is the most popular unit of weight for gold and silver coins, although many coin denominations are also available in fractional ounces (1/2, 1/4 or 1/10 oz), as well as in gram and kilogram units.
Standards of fineness and purity
In addition to having the most acceptable proportions, the fineness of precious metal is equally important. For investment products, this information is rendered in four digits (representing thousandths) and quantifies the proportion of pure metal present. Today’s modern bars and coins consist of almost 100% gold or silver. This can be readily established by looking for “999.9” stamped on the product – known in specialist circles as the “Four Nine Fine” mark. Some special editions even offer a purity of 999.99/1000 gold (Five Nine Fine), but these pieces are usually aimed at the specialist collector market.
So, we can generally assume: The higher the fineness, the greater the value of the precious metal. While this almost always the case, every rule has its exceptions! The Krugerrand and the American Eagle are two of the most valued investment gold coins which are traded worldwide at close to the gold price. The fineness of both these classics is rated at only 916.67/1000 gold. This is because the Krugerrand has an added copper component, giving the coin its characteristic reddish shimmer, while the Eagle has some added silver, making these gold coins appear brighter. In each case, the additional alloy creates a coin with a harder and more durable surface.
For clarity, and to supplement this knowledge: The fineness of precious metals can also be converted into carats. Many people associate the term “carat” (or sometimes “karat”) with jewellery processing, where the amount of gold in an alloy is expressed as a proportion of 24 parts. The following gold/carat table provides an overview:
| Fineness in thousandths | Use | Carat equivalent (kt) | Percentage |
|---|---|---|---|
|
333/1000 |
Jewellery |
8 kt |
33.3 % |
|
375/1000 |
Jewellery |
9 kt |
37.5 % |
|
417/1000 |
Jewellery |
10 kt |
41.7 % |
|
585/1000 |
Jewellery |
14 kt |
58.5 % |
|
750/1000 |
Jewellery / dental gold |
18 kt |
75.0 % |
|
835/1000 |
dental gold |
20 kt |
83.5 % |
|
875/1000 |
Jewellery |
21 kt |
87.5 % |
|
916,66/1000 |
Jewellery, coins |
22 kt |
91.6 % |
|
999/1000 |
Jewellery, bars, coins |
24 kt |
99.9 % |
What constitutes investment gold?
High-fineness gold bars and coins as described above are suitable for wealth creation, capital protection, or asset diversification in combination with other investments such as stocks or funds. Gold bars with a fineness of 995/1000 and above are generally considered to be investment gold, but the definition of investment coins is a little more complex. Gold coins must have a minimum purity of 900/1000. In addition, they must have been recognised as legal tender in their country of issue – a feature which is easily established when the coins already have a nominal value stamped on the face. In addition, the selling price of such coins may only exceed the value of their gold content by up to a maximum of 80%.
Classic bullion gold coins such as the Krugerrand, Maple Leaf and Vienna Philharmonic, or the Vreneli and Helvetia, are considered to be investment gold.
As a layman, you may well be wondering why this classification is important – after all, gold is still gold. But the particular feature of precious metal defined as investment gold is its special status: Investment gold can be bought free of VAT in retail transactions, whereas jewellery and older historical coins are subject to VAT at the full rate. This ex-VAT status means the value of your investable capital can then be fully utilised.
What are the special features of investment silver?
When purchasing silver, statutory VAT is generally charged when buying or selling silver coins and bars, regardless of their fineness. And likewise, products made from platinum or palladium are also subject to this same regulation. The VAT rate can vary from one country to another: In Switzerland, for example, the rate is fixed 8.1%. Meanwhile, the VAT rate in EU member states and other third countries can be as much as 17-25%.
So, when compared with investment gold transactions, investors will receive less white metal for their capital investment. However, you can buy silver free of VAT subject to the provision it is then directly stored in a Swiss duty-free warehouse.
The significance of LBMA certification for precious metals
For today’s producers wishing to market their precious metal bars and coins, LBMA certification is certainly ideal, even if not entirely obligatory. Its primary purpose is to create trust for investors regarding the origin of raw materials, and to certify the purity and authenticity of those materials. The London Bullion Market Association (LBMA) is the largest over-the-counter trading venue. So anyone who wants to sell their gold or silver within that environment has to first undergo a stringent testing and accreditation process to ultimately qualify for LBMA certification. Such manufacturers are then entered on the Good Delivery List, a register which is constantly updated.
The gold or silver bars produced must comply with the so-called Good Delivery Standard. This defines specifications such as weight, fineness and dimensions. In addition, markings are required for clear identification, which we will discuss in the next section.
As already mentioned, the Good Delivery Standard bars are rather unsuitable for private investors. Due to their size, such silver bars cost more than 20,000 Swiss francs each, depending on the current price. A gold bar of the standard class would cost around CHF 700,000. This is more in the order of magnitude of banks or other institutional buyers. But this is about the quality of the investment products. This is because LBMA-certified manufacturers also produce standard bars and coins for classic investment requirements in accordance with the proven criteria.
Hallmarked gold bars
Although the LBMA does not award a seal of quality, certified manufacturers are obliged to label their gold bars in accordance with LBMA specifications. Each product must have clearly identifiable hallmarks or embossed details on the surface of the metal, either on one or both sides. The central element is usually the logo of the respective manufacturer or distributor, and this same hallmark is also a guarantee of product authenticity and purity. Furthermore, the exact weight of the product must be included, plus a confirmation of the material and its fineness. To assist in tracing the precise origin of the gold, each gold bar also has a serial number, and some editions also add the year of manufacture. Silver bars are hallmarked in the same way.
© Swiss Gold Safe
- 1 - Manufacturer logo
- 2 - Unit
- 3 - Metal
- 4 - Fineness
- 5 - Smelter/Assayer
- 6 - Serial number
Production of precious metal bars
Whatever material is used to make precious metal bars, one of two different processes will be employed to create a bar with a typical block profile. Bars weighing up to 150 grams are usually minted (punched out) from a single piece of flat gold and then individually embossed. Bars weighing 250 grams upwards are more likely to use a casting process. Here, liquid gold or white metal granules are poured into a standard mould and then allowed to cool and solidify. Hallmarking is then carried out using special punches to make an impression in the soft surface of the still-cooling metal.
What do the stamps on precious metal bars mean?
Thanks to the punching and embossing process, precious metal bars weighing 1-150 grams will have a more precise shape and usually a more elegant, matt-gloss surface. This effect is created by carefully preparing the embossing stamps to create a more polished finish. As a result of this process, the embossed motifs are an attractive feature which cast bars cannot replicate due to their coarser manufacturing process. For several years, precious-metal ‘coin bars’ have been available bearing attractive motifs on the front and back. These are still rectangular and carry a circular coin emblem with an embossed nominal value.
Divisible tablet bars and anti-counterfeit Kinebars
Flat, tablet-shaped bars are also minted and commercially available. These are partitioned, rectangular gold plates, usually weighing 1 gram. Rather like a bar or slab of chocolate, these bars have predetermined breaking points so they can be further broken down into smaller sections by hand, with each individual piece then ready to be sold on as required. Well-known Swiss products offering this format include CombiBars from Valcambi and MultiDiscs from Heraeus.
Kinebars from the Swiss manufacturer Argor Heraeus are another special development. These are minted bars available in many denominations from 1 gram up to to 1 ounce which have an additional security feature on the back. Known as a Kinegram, this is an embossed shimmering hologram emitting attractive reflections in all colours of the rainbow according to the light source and the angle from which it is viewed. These elaborate hologram bars have been produced since 1994.
© NES Edelmetall - stock.adobe.com
Production of precious metal coins
All coins are created by minting prepared blanks of the required unit of weight. The process uses special embossing stamps bearing a graphic design. Two separate stamps are required because precious metal coins have different motifs on each side. These are simultaneously pressed onto the blanks in a single-step process. Some coins, such as the Maple Leaf, also include laser engraving as an additional security feature. To meet the demands of the bullion market, some of these minted blanks are kept in their original condition. This is how embossed quality coins described as ‘uncirculated’ or ‘freshly minted’ are created. Meanwhile, collector coins are often minted on polished plates or processed using specially ground stamps to create their characteristic high-gloss surfaces.
What’s the difference between a coin and a medal?
Medals are also circular and contain precious metals, but they are neither coins nor investment products. They are usually embossed on one side only and have a very thin layer of gold or silver. The core component of a medal often consists of nickel or some other heavy metal. Medals are more likely to be considered memorabilia or commemorative pieces and are often presented at events or given as awards. Precious metal coins are official issues ordered by their respective state governments, while medals can be produced by any mint without government approval. Medals have no nominal value stamped on their surface and have no legal-tender status – which means they cannot be used as a means of payment.
Certificates of authenticity for coins and bars
Many renowned manufacturers present bars or coins to the market together with additional documents. These certificates of authenticity indicate the origin, quality and technical specifications of their products. Numbered certificates are often issued for limited edition special coins offered as individual pieces. They can also accompany precious metal bars or bullion coins issued in large quantities. Such coins are then packed in coin tubes containing 10 to 25 pieces and placed in master boxes holding 10 or 20 tubes. Such packages are usually closed and secured with a seal. The corresponding certificate provides proof of authenticity and means these coin packages can then be stored unopened.
Purchasing and storing gold and silver
Experts recommend you should buy gold or silver from a specialist precious metal retailer. This can either be on site over the counter or via a reputable online shop such as Echtgeld AG. All other options should be treated with the greatest caution to avoid purchasing expensive counterfeits which actually prove worthless and cannot be resold later.
Precious metals are a high-value-density product which must always be stored safely. Solid, purpose-built home safes, bank safe deposits or bank-independent safe deposit boxes, such as those offered by private storage companies in Switzerland, are recommended for this purpose.
Precious metal bars and coins – a quick summary
- Bars and coins for investment purposes are made from high-quality precious metals such as gold, silver, platinum or palladium. The two grey metals are regarded as niche products.
- These investment products are classified according to their weight, and available in either grams or ounces. One troy ounce is equivalent to 31.103 grams.
- Investment gold has a fineness of at least 900/1000. It can be purchased ex-VAT from specialist retailers. Investment silver is often offered at a fineness of 999/1000. However, silver purchases are generally subject to VAT.
- The LBMA certifies manufacturers. This quality seal informs investors as to the origin and nature of the respective precious metal.
- Larger gold and silver bars weighing 250 grams or more are made from cast metal, while smaller units are punched and embossed. This latter process creates a more precise shape and also produces a smoother surface.
- Precious metal bars are clearly identified by stamps and hallmarks and can be assigned at any time.
- Refined bullion coins are minted on both sides in a complex process. They are suitable for investors and collectors. However, medals are not investment products.
- Precious metals are best purchased from specialist retailers and should be stored safely to protect and preserve their value – for example, in a bank-independent safe deposit box in Switzerland.