What Is Silver Bullion?

Silver has been used as currency, to trade, and to create things like tools and utensils for thousands of years.

Of all metals, silver is the whitest in color and it has the highest thermal and electrical conductivity. Nowadays, it’s used quite often in the industrial industry to create things like mirrors and batteries, but it’s also great for investing. A common form that people invest in is silver bullion.

What is silver bullion, though? Read on to find out.

What Is Silver Bullion?

Silver bullion is officially recognized as being 99.9 percent pure, and it comes in the form of both ingots and bars. While not as common today, it’s been kept as a reserve asset by governments and central banks for decades.

To make bullion, mining companies must first discover silver, it’s then removed in the form of ore, and then extracted from the ore with chemicals or heat. The pure bullion that’s created as a result is called “parted bullion,” while bullion containing more than one type is known as “unparted bullion.”

Understanding Bullion

Bullion is most often kept in bank reserves, but sometimes investors choose to keep it in their homes or at a separate facility. Some investors use the commodity to hedge against inflation in their portfolios, while beginners see it as a safe first-time investment to make.

Bullion is sometimes considered legal tender, and countries will sometimes use it to settle national debts or to stimulate the economy (this is usually done with gold rather than silver).

Silver isn’t as naturally abundant as gold, so it’s mostly used for investing and trading. If you invest, however, and need to pay off a debt or some other fee, you can easily sell your silver to do so.

How Banks Sell and Lend Bullion

Central banks will usually lend gold to bullion banks for a specified period, and the bullion bank then receives the cash equivalent of the gold that was lent to it. Bullion banks can then sell that gold or lend it to mining companies.

If a bullion bank chooses to sell its gold on the spot market, it’ll receive cash for the transaction. This market is where bullion and other commodities get traded for market value. If someone discovers silver, that increase in supply means a lower price.

So, most often, bullion banks hope the price of the precious metal they lent out will hold a lower value when they decide to buy it back. Once the bullion bank buys it back, it’s then returned to the central bank, indicating the end of their loan period.

When bullion banks lend to mining companies, it’s usually to finance a project. A mining company would also borrow if it entered into a forward hedge contract, meaning gold that hasn’t been discovered or mined is sold to buyers. If buyers expect a physical delivery, then the mining company usually borrows from the bank and then delivers the undiscovered gold to the bank.

So, those loans are usually repaid with the company’s future mining output.

State of the Bullion Market

There are bullion markets all over the world. Most transactions are completed electronically or by phone, and the transactions can be done pretty much 24 hours a day. In most markets, silver and gold bullion are seen as safe haven investments, meaning their prices usually rise when emergencies or national events break out.

Gold is usually worth more than silver, however, in a bull market, the price of silver is going to rise higher and faster than gold. So, when things are in silver’s favor they’re really in its favor.

How to Purchase and Invest in Bullion

How can you get your hands on your own, though? Luckily, purchasing and investing in bullion is a lot simpler than it may seem. 

Physical Form

The first way is either in physical or paper form. Silver bars or coins are from a reputable dealer and are kept either at your home, in a bank, or housed in a secure storage facility. Most bullion gets bought through banks, but you can also shop for silver here.

Buying online is usually the simplest way to get your own bullion, and it’s also the most convenient. While you are responsible for the costs of transportation, delivery, and insurance, you never even have to lift a finger to ensure it arrives at your intended destination. Just remember to include these extra costs into your investment.

Exchange-Traded Funds (ETFs)

Not quite the same as owning physical bullion, investing in silver ETFs still allows you access to the bullion market.

Put simply, these are funds that contain certain securities while the fund itself usually tracks an underlying index. You’ll receive a certificate once you make your purchase, and that can then be bought and sold in a fashion similar to equities using a standard or IRA brokerage account.

These usually come with low fees and are a lot easier to access. There’s no worry about buying and housing the silver itself.

Ready to Start Investing in Silver?

It might seem small, but investing in silver can have a big impact on your portfolio. Whether you’re just getting started or you’re looking to make a physical investment, silver is a great place to start. Now that you can answer the question, “What is silver bullion?” and learned a bit about the market, you’re set for success.

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