Interest in owning gold as a form of wealth protection is increasing as confidence in banks, currencies, and the property market continues to be eroded. But if you’re in the market for buying gold bullion for the first time, you may wonder where the bullion you buy comes from, and how the purity of the precious metal is assessed. Ed Pearce, Managing Director of Douglas-based gold bullion depository and trading company IMGold, explains in this beginner’s guide.
All reputable bullion dealers or bullion depositories will source precious metals from leading refineries and provide gold bars made from what is referred to in the industry as ‘investment-grade bullion’. Bars can range from one ounce to 400 ounces. Investment grade bullion is defined as being 99.5% pure or above. The highest grade available is that which is tested and hallmarked as being 99.99% pure – this is known in the industry as ‘four nines’ and generally considered to be ‘pure gold’. The purity of gold can also be defined in terms of its ‘fineness’ which is a measure expressed in parts per thousand. For example, 99.99% pure gold would have a fineness of 999.9 parts per thousand. For very high technology applications it is possible to produce gold of up to 99.9999% purity in small quantities, but it is not generally considered practical to refine the metal beyond 99.99% for the manufacture of bullion. In comparison, 24-carat gold used to make jewellery is refined to 99.9% purity.
When gold of investment grade quality is made into bars it is transported to an assay office for hallmarking and the issuing of certificates of authenticity. The process of hallmarking is one of the oldest forms of consumer protection and dates back to 1300 when King Edward I introduced a law which ordered the assaying (testing) of precious metals to prevent unscrupulous traders from passing off plated base metals as pure gold or silver. Initially, the role of assaying precious metals was given to the Wardens of the Company of Goldsmiths in London. In the 15th century the Wardens were paid to test and mark precious metals submitted to them at Goldsmiths Hall, hence the term ‘hallmarking’.
Today, the work of assay offices still ensures the purity of gold and hallmarks give the buyer complete confidence in knowing what they are purchasing is the genuine article. There are assay offices in many countries, but the UK is one of only a few that have compulsory statutory hallmarking. The Hallmarking Act 1973 and subsequent amendments state that all gold sold in the UK (apart from items weighing less than one gram) must be tested and hallmarked by an independent, third party, assay office. Bullion dealers can also request that gold bars are specially minted with code numbers unique to the owner of each bar. For example, IMGold sources its bullion from a UK refinery which produces it to order for each customer. The bars are then sent to one of the UK’s four assay offices and each bar is hallmarked with the assay office’s stamp, a stamp showing the fineness of the gold, the IMGold logo, and with a serial number unique to each customer. There are several different ways to own gold. Three examples are ETFs (exchange trade funds), pool allocated bullion, and allocated bullion:
- ETFs: A gold exchange traded fund is commodity ETF that consists of only one principle asset, gold. However, the fund itself consists of gold derivative contracts that are backed by gold. You do not actually own any gold.
- Allocated bullion: Regarded in the industry as the most secure way of owning gold, allocated bullion means that gold is purchased and stored in a vault owned and managed by a recognised bullion dealer or depository. The bullion dealer or depository that owns the vault may not trade, lease or lend the bars – except on the specific instructions of the bullion owner. It also gives the owner of the bullion the reassurance of knowing that they can take physical possession of their gold whenever they wish to do so. IMGold only offers allocated bullion.
- Pool allocated bullion: Pool allocated bullion means owning a percentage of bullion which is shared with other individuals and stored in a vault owned and managed by a recognised bullion dealer or depository. However, unlike allocated bullion, you do not own a bar of gold so cannot take possession of it.
The process of buying gold is now very straightforward and easier than it’s ever been. However, if you’re entering the gold market for the first time it pays to carefully research the credentials of who you are dealing with and to make sure that they provide all of the reassurances the industry demands from reputable bullion dealers and depositories. For more information go to www.imgold.com or call +44 (0)1624 888 888.