What is Bullion Market?
- 5 min read
Do you know that gold prices have increased more than 200% in the last 10 years? Several factors, including currency fluctuations, inflation, and geopolitical tensions, have contributed to this price increase.
Due to this, beginner investors should gain a better understanding of the bullion market. Read this blog to understand the bullion market meaning, different types, and how to invest in it.
What Does Bullion Mean?
Bullions are physical forms of precious metals like gold, platinum, and silver. These bullions are traded according to their metal content instead of face value. After refining to a high level of purity, these metals are typically available in bars or ingots.
Mining companies discover and extract these metals from the Earth’s ore using extreme heat. Not only in India, but also central banks throughout the world keep bullion as a reserve asset.
Investors can purchase them in paper form, physical bullion, futures contracts, or hold shares in exchange-traded funds (ETFs).
Concept of the Bullion Market
Bullion is used in financial markets as a medium of exchange. You can trade precious metals like gold and silver in the bullion market. Investors engage in trading these metals to diversify their portfolio or hedge against economic uncertainties.
It includes spot market transactions and is also traded as futures and options via over-the-counter (OTC) platforms or regulated exchanges.
Different Types of Bullion Markets in India
In India, there are two types of bullion markets. One is the Multi-Commodity Exchange (MCX), and another is the India International Bullion Exchange (IIBX).
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Multi-Commodity Exchange
Regulated by the Securities and Exchange Board of India (SEBI), the MCX allows trading of bullion as derivatives such as futures and options contracts on various commodities. You can trade gold and silver contracts in this exchange as price-based financial instruments.
The transactions of derivative contracts are mostly cash-settled. However, delivery-based options are available for specific contracts.
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India International Bullion Exchange
The IIBX allows you to spot trading of physical bullion, especially imported gold and silver. The International Financial Services Centres Authority (IFSCA) regulates the IIBX. This exchange allows delivery-based trading of real gold or silver.
How to Invest in Bullion?
After understanding what is bullion trading, let us learn the different ways to trade it. There are numerous ways you can invest in bullion, which are explained below:
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Physical Bars
Investing in physical bars or coins is one of the traditional ways of investing in bullion. You must purchase them from trusted jewellers, authorised dealers, and banks through dealers.
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ETFs
ETFs also allow you to invest in these precious metals digitally. You can also track their prices and trade them on stock exchanges.
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Futures Contracts
You may also speculate on the price of bullion and gain returns without owning it physically or digitally. This involves the process of buying or selling a particular amount of bullion at a predetermined price on a fixed date.
For digital bullion trading, you can download the PL Capital Group – Prabhudas Lilladher application and open a commodity trading account. PL offers you to invest in both gold ETFs and gold futures.
Associated Risks in the Bullion Trading
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Capital Loss Risk
Investing in bullion like gold, silver, or platinum carries the risk of capital loss. Investors may face huge losses if prices fall after purchase due to market volatility. Since economic, political, and environmental factors influence the price movements, bullion trading might be unsuitable for investors seeking capital stability.
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Liquidity Risk
Physical bullion includes a higher liquidity risk. You may face difficulties while selling the metals in a declining market. However, the liquidity can vary based on the type of metal and its form, including bars and coins.
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Regulatory Risk
The applicable charges for holding precious metals may vary significantly from one country to another, which may also change over time. Since any regulatory developments could impact their profitability, you should stay informed about the latest tax obligations.
Final Thought
Understanding the bullion market meaning is useful for investors who want to protect themselves from inflation. In India, you can invest in bullion as physical bars, ETFs, and futures contracts.
Download the PL Capital application and open a trading account with zero annual maintenance charges. You can trade gold and silver with PL’s powerful tools and research-backed trading strategies.
Frequently Asked Questions
1. What is the meaning of bullion?
Bullions are precious metals like silver and gold in the form of ingots, bars, and coins.
2. What is a common example of bullion?
A common example of bullion is a gold coin.
3. Does bullion only include gold?
No, bullion does not only include gold. It refers to coins, bars, and ingots of precious metals like platinum, silver, and palladium.
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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
