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Most of us who hear the word bullion have the tendency to immediately relate it to gold, and for good reason as the word bullion does refer to a format of precious metals that are produced by a mint. However, the word bullion is derived from the French word bouillon which basically translates to ‘boiling’ referring to a mint or melting house.
As time passed the term bullion was eventually used to describe ingots or bars that were made of base metals that were not only made from precious metals but also other base metals such as aluminium, copper and nickel that are constantly in demand by a variety of industries. Nevertheless the mining and refining sectors tend to associate bullion specifically to precious metals such as gold, silver and as well as palladium and platinum.
The value or price of bullion consisting of precious metals is determined by two primary factors that is purity and mass as a basis for standard that fall under the regulations of market consortiums such as the LBMA (London Bullion Market Association) and the minimal purity for gold bullion set by these consortiums for the bullion to be accepted as ‘good delivery’ is 99.5 % and the minimum content of gold for gold, silver and platinum coins are set at 90 % purity. Regardless of the logistics, the reason as to why gold, platinum, palladium or silver bullion are in such high demand constantly is due to the fact that they are regarded as one of the safest investment that one could possibly invest in based on the fact that no matter what happens or how low their prices falls, they are CERTAIN to bounce back given the right amount of time.
This is due to the scarcity factor of these base metals that automatically give these metals value regardless of what form they come in making them the perfect vectors for hedging against currency risk that protects an investor’s wealth against sudden or rapid inflation. If we were to look into the matter from a micro perspective, we could use the recent gains of the US dollar is an example of how these scenarios plays out on the economic stage.
For individuals in Europe who managed to store a certain percentage of their wealth in gold or silver would have also gained from the rise in the US dollar based on the fact that precious metals are priced in dollars and therefore these individuals would have effectively hedged their wealth against the dollars advent on the Euro as opposed to those who maintained their wealth in Euro currency who would have suffered a loss if their wealth was recalculated in dollars.
Of course this is just a simplistic view that does not explain the entire situation which is much more complex, but in essence if an individual in Europe would have stored his or her wealth in gold, the rise of the US dollar would have given them more Euros than they previously had if they were to sell their gold in the higher rate of the dollar which would have compensated for the difference or increase of value between the dollar and the Euro.