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. The London Bullion Market is known as the primary global bullion market trading platform for gold and silver.
- 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.
- Beyond using the bullion market to invest in gold and silver, there are also exchange-traded funds (ETFs), such as the SPDR Gold Trust (GLD)—offering more flexibility beyond the physical commodities.
How a Bullion Market Works
The bullion market is generally known as the market for gold and silver trading. The bullion market is the primary source of gold and silver trading quotes throughout the day. Multiple bullion markets exist across the globe. These bullion markets are typically characterized as over the counter 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 which may also affect its trading value.
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. The SPDR Gold Trust (GLD) is the largest gold ETF fund by assets as of Nov. 2019. Assets in the fund were $44.3 billion with a trading price of $140.
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
Bullion markets exist in New York, Zurich, and Tokyo, with London serving as the location for the largest global bullion market. Bullion market trading is known to have a high turnover rate with transactions conducted electronically or by phone.
The London Bullion Market is the primary bullion market for trading globally. The London Bullion Market is an over the counter market open 24 hours a day. It 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 Nov. 2019, gold was trading at $1,509 on the London Bullion Market exchange. The London Bullion Market includes approximately 150 members from over 30 countries. Membership companies primarily derive the majority of their business revenues from gold or silver bullion. Members pay approximately £5,000 to £12,000 ($6,441 to $15,460) annually for membership.