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Investing in precious metals is an excellent way to diversify your portfolio. In general, if paper markets go down, the price of gold increases, ensuring that your investment keeps increasing in value no matter the current economic climate.
However, investing in gold has a bit of a learning curve. There are so many different ways to invest in gold, each with its own set of rules, benefits, and drawbacks, that it’s difficult to navigate the field as a beginner. Understanding the gold market is vital if you want to pursue precious metals as a serious investment. Below, our gold experts at The Oxford Gold Group explain the details of gold bars.
What Is a Gold Bar?
Investors generally buy and sell gold in two broad categories: physical gold bullion and indirect options such as mutual funds and gold exchange-traded funds.
Physical bullion consists of either gold coins or gold bars. Both are made from pure gold into the traditional blocky bar shape or a specific coin. Many countries mint their own gold coins, though these have varying prices depending on the purity of the gold and their size.
Gold bars come in a wide array of sizes, making them excellent investment vehicles. If you’re just starting on your journey, you can buy smaller gold bars that are easier to store and more affordable. As you get more comfortable with the market, you can invest in larger gold bars that are usually more valuable but will require specialized transport and storage.
Factors Involved in a Gold Bar’s Value
While gold is an extremely stable long-term investment, the spot price per ounce of gold fluctuates daily, depending on many interlocking factors. The first step in figuring out how much a gold bar is worth is understanding the various forces acting on the price of gold bullion, which can help you identify the best time to buy or sell gold.
Current Market Price
Gold’s current market price, or spot price, can change dramatically throughout the day, so it’s worthwhile to keep an eye on current prices before you commit to a purchase.
Many factors play a role in the current price of gold, including:
- U.S. Dollar Value: Generally, gold’s value is inversely proportional to the dollar’s performance. A strong dollar results in lower gold prices, while a weak U.S. dollar drives up gold prices due to increased demand (since you can buy more gold with a lower value currency).
- Worldwide Demand: While gold is mainly decorative, it does have several industrial uses, particularly in electronics. Combined with the global demand for gold jewelry, gold is subject to the basic principles of economic supply and demand: The more an industry needs gold, the higher its price.
- Investment Demand: Gold demand isn’t limited to physical gold bars — exchange-traded funds and other gold-based investments can also drive demand. According to the World Gold Council, gold purchases from investors drove 29% of the world’s gold demand in 2019. As more people start buying gold, the gold price will likely increase due to higher demand.
- Gold Production: Gold production relies on countries finding reserves and mining them. Setting up a mine takes time and expense, so most mining companies will wait for a clear increase in demand before starting new mines or expanding their current operations.
- Economic Climate: Many people start buying gold during a recession due to its reputation as a stable commodity during turbulent financial times. Investors typically buy gold to offset the effects of economic events such as currency devaluation or inflation, which increase the gold price.
The gold percentage is usually a concern in gold jewelry, where most pieces consist of gold alloys that offset some of gold’s disadvantages. Similarly, some countries will use alloys to cast bars that are mostly gold but contain other precious metals such as silver or platinum.
The measure of gold percentage is the Karat (K). A 24K gold piece contains 100% pure gold, while an 18K piece contains 18/24 portions of gold, or 75%. Gold bars made from lower-purity gold will have a lower price than pure gold bars that weigh the same.
If you’re planning on investing in the gold market as part of your retirement plan, be aware that the IRS has certain limitations on what gold bars and gold coins you can buy and regulations on how to store them correctly. IRS-approved gold bullion must have a fineness — or purity — of at least 0.995, or 99.5%.
Bigger bars will always be more valuable than their smaller counterparts, simply because these larger gold bullions contain more gold.
Rarity and Condition
Rarity and condition are more important for gold coins, where the collector’s aspect may also influence the price of the coin.
Coins, especially those in use, will wear out over time due to excessive handling. The government will remove these extremely worn coins from circulation, decreasing the surviving population. In some cases, so many of these items get removed from the market that the coin price increases due to the extreme rarity of the coin.
Similarly, coins in better condition will have a higher value than those in poor condition. Collectors will often send their coins to a professional grading agency to determine the coin’s condition and grade.
Cast Bars vs. Minted Gold Bars
Not all gold bars are made equal, and the manufacturing process can influence how the bars look, how well they sell, and even their value.
Minting Gold Bars
When you imagine a gold bar, you’re likely thinking of a minted gold bar. These bars are completely consistent in weight and have a glossy shine and a perfectly smooth finish.
The traditional minting process involved melting gold until it became completely liquid, pouring it into a mold, and then placing that mold in a compression machine, which removed most of the irregularities, resulting in bars of a common size.
Modern mints use continuous casting, where molten metal goes into a casting machine that produces a long strip of gold. Other machines then cut the bars into their desired shapes and sizes, while the gauging mill ensures that every bar is exactly the same weight and shape. Finally, these blanks go through quality control to meet all the needed criteria.
If they pass, the gold bars go into a stamping machine that stamps the blanks with the manufacturer’s details and other important information. Any bars that don’t meet the rigorous standards of the mint will go back into the melting pot and go through the entire process again.
Casting Gold Bars
Casting relies on pouring molten metal into a preformed mold. Manufacturers can make molds to maintain a certain size and bar weight and will stamp their mark and the bar’s purity a few hours after taking the gold from the mold.
Cast bars have a more distinct and natural appearance than minted bars due to minor irregularities in the mold and the casting process. They’re available in all the same bar weights as minted bars, but each cast bar will look unique. These minor imperfections make cast bars slightly more affordable than their minted counterparts.
Differences Between Cast and Minted Bars
In addition to looking different, minted and cast bars each have unique properties that will influence which one works better as an investment. Some of the most important differences include:
- Appearance: Cast bars are less uniform than minted ones and have distinguishing irregularities on their surface.
- Price: As casting is a cheaper manufacturing process than minting, cast gold bars have slightly lower prices than minted gold bars of similar weight.
- Packaging: Mints usually pack their bars in special packaging, and removing this packaging can affect the gold price of the bars inside. Cast gold bars do not come in similar packaging, allowing you to handle them.
Benefits of Buying Gold Bars
Even with so many investing options available, many people still gravitate towards gold as an investment vehicle. Here are some reasons why gold bars are worth your attention.
Gold’s value is directly inverse to that of paper money — if the dollar’s value goes up, gold becomes more affordable. If the dollar goes down, gold prices will increase. By diversifying into gold, you can protect your investments and weather any financial storm.
Ease of Selling and Buying Gold Bars
The gold market is thriving and active, meaning that it’s relatively simple to find a broker and buy your first gold bar. This activity means you can easily trade gold as an investment or buy gold to store at home.
More Space Efficiency
A gold bar concentrates a lot of value into a small space. Gold’s high density makes it significantly more compact than silver and easier to store. For example, $50,000 worth of gold weighs 2.6 pounds, while silver bars would weigh almost 190 pounds. This reduced weight also affects transport and storage costs, making gold a better long-term investment.
Where Can You Buy Gold Bars?
Most people will buy gold through a gold broker or an online retailer. Reputable brokers will help you choose the right precious metal for your needs and decide which of the popular sizes is a good starting point. Online retailers are a more do-it-yourself option but offer a wider range of different sizes and even shapes.
It’s important to note that you will often pay more for your gold bar than its spot price. That’s because most gold sellers will add a certain premium to each purchase. Typically, smaller weights will incur larger premiums, as it takes more effort to mint 100 1-ounce gold bars than to mint one 100-ounce gold bar. That’s why many brokers recommend purchasing the highest-weight bars you can afford, which will dramatically reduce the price of every individual bar.
Popular Gold Bar Sizes
Most gold sellers will sell gold bars by weight, resulting in bars of different sizes. Smaller bars weigh less and are a more affordable option for new investors. Smaller sizes are also easier to store but offer less flexibility for a dedicated investor.
One thing to remember about gold weights is that they don’t correspond with the traditional imperial weights that you use daily, despite having the same name. Gold and other precious metal traders use the troy ounce, which is heavier than the ounce you use at the grocery store.
The one-ounce bar is popular as it makes calculating its value simple — most markets base their spot price on a troy ounce of gold. So if you have six one-ounce gold bars, all you need to do is check the current price and multiply it by six. When you move into gram weights, you’ll need to convert from metric to imperial units before determining your bars’ total value.
10-ounce gold bars are a popular choice for individuals looking to store wealth rather than use gold as an investment vehicle. 10-ounce gold bars are easier to store than smaller gold bullions, and buying a single bar for a certain price is easier than dealing with the premium cost of multiple, smaller options. The main drawback of the 10-ounce bar is that it may be more difficult to sell than individual 1-ounce gold bars.
If you don’t want to worry about the difference in gold prices between a troy ounce and a traditional ounce, switching to metric units may be the way to go. Unfortunately, most precious metals operate on the troy ounce, so you’ll need to convert your grams to troy ounces to get the purchase price of your gold bar.
100-gram bars are smaller gold bars, often used as investment vehicles for traders. They tend to move quickly on the market, making them a go-to option for metric investors looking to get fast returns on their money.
One kilogram of gold is the same weight as 32.15 troy ounces. The 1-kg bar is the preferred purchase for experienced investors, as the gold bars have lower trading volumes than smaller gold bars. These lower trading volumes make them a good option for investments that take advantage of the long-term gold price trend.
Making Money on Gold Bars
Knowing how much a gold bar is worth is only the first part of understanding gold investing. Once you buy gold, you still have to find reliable storage for your gold bars and be ready to watch the price of gold to make informed selling decisions to recover your initial cost.
At Oxford Gold Group, we offer expert advice on maximizing your gold investment, considering gold prices, your preferred gold bar size, and your ultimate needs. Get in touch today at (833) 600-4653 for more information or to buy your first gold bars!