What Is a Bullion Market?

A bullion market is a market through which buyers and sellers trade gold and silver as well as associated derivatives. There are various bullion markets dotted around the world, although the London Bullion Market is known as the primary global market trading platform for gold and silver.

Key Takeaways

  • The bullion market is where gold and silver are traded.
  • There are many bullion markets, but the primary market is the London Bullion Market, which allows trading 24 hours a day and facilitates futures and options trading.
  • Companies with a membership on the London Bullion Market exchange generally derive most of their revenues from gold or silver. 
  • The bullion market is just one of several ways to invest in gold and silver. Other options include exchange-traded funds (ETFs) and mutual funds, which generally offer more flexibility.

Understanding the Bullion Market

The bullion market is generally known as the market for gold and silver trading. Multiple bullion markets exist across the globe. These bullion markets are typically characterized as over-the-counter (OTC) markets

The industrial uses of gold and silver are the primary market drivers for the pricing of these precious metals. Gold and silver traded in the bullion market can sometimes be used as a safe-haven investment or hedge against inflation, too, which may also affect their trading value.

Bullion market trading is known to have a high turnover rate, with transactions conducted electronically or by phone.

The bullion market is just one of several ways to invest in gold and silver. Other options include exchange-traded funds (ETFs) and mutual funds. These options can be more appealing to investors because they offer greater flexibility. As of July 2021, the SPDR Gold Trust is the largest gold ETF by assets, with total assets over $60 billion and a trading price of $169.09.

Physical bullion offers less trading flexibility than other gold and silver investments because it is a tangible object that comes in bars and coins of established sizes, which can be difficult to buy or sell in specific amounts. Bullion is also expensive to store and insure.

Types of Bullion Market

There are various bullion markets across the globe, including in London, New York, Tokyo, and Zurich. The London Bullion Market is the primary bullion market. It is an OTC market open 24 hours a day that transacts gold and silver at market spot prices, and also includes trading of forwards and options on the metals.

The London Bullion Market is maintained by the London Bullion Market Association, which has established standards for the production quality of metals transacted and settled within the market. It offers a global standard for precious metals transactions. As of July 22, 2021, gold was trading at $1799.45 on the London Bullion Market exchange.

The London Bullion Market currently has 75 full members, 58 affiliate members, and 12 market makers on its books from 23 countries. Membership companies primarily derive the majority of their business revenues from gold or silver bullion. Members pay approximately £6,500 to £17,000 ($8,900 to $23,300) annually for membership.