Best definition of "bullion"

[Bimetallic]

Hi all – I need a perfect definition of precious metals bullion for a tax reform project I'm working on.

What comes to mind when you think of what bullion is, fundamentally, and how you'd define it rigorously?

Note that I've sometimes seen people define bullion as exclusively the government minted stuff, or even coins specifically (coins being defined as having a nominal value). I mean bullion in what I understand as the more common definition that includes both government minted and privately minted products.

But what is it, precisely? What makes an object "bullion"?

Note also that a good definition can't specify a fineness or purity. Reason: We have to let the market decide to allow for innovation and changes in preferences. Any government dictated fineness is ultimately arbitrary and makes no sense. And in actual practice, government definitions in Singapore, Australia, and New Zealand, for example, dictate unreasonable fineness levels of 99 or 995, which excludes some of the most popular bullion in the world, like American Gold Eagles, Gold Krugerrands, Sovereigns, pre-2012 Silver Britannias, and pretty much all coin silver (aka "junk" silver).

If someone wants to offer bullion products in a silver alloy similar to Britannia silver (958 fine) or Sterling (925), or any other purity, they should be free to do so without being tax-disadvantaged. (I for one would love it if a mint used Argentium silver for bullion bars. It's a great alloy, much harder and tarnish-resistant.) We can't predict what people might invent or develop as far as bullion alloys and purity levels in the future, so a good legal framework should let the market decide.

In some US state laws I see phrasing like "ingots sold according to its precious metal content and not form".

That comes up often in definitions – the idea that bullion is sold or defined by its precious metals content – the weight – as opposed to other factors like numismatics or collectible nature. One challenge is that I'd want at least the precious metals content in numismatic items to be tax-exempt, while taxing some increment above its melt value.

What do you think a good definition would be? What are the essential characteristics of bullion?

Thanks.

[Rll1288]

Well bullion.. if you look up the definition means, in its purest form, as a Gold or Silver (well any precious metal) in bars, ingots or coins. That said, I think a lot of the time we think of it as coins which are not uncirculated or proof items and have come to think of it in those terms rather than what it was original looked as....  as for tax... I suppose it depends on the country and how they view what taxable implications apply. In the UK we don’t charge CGT on gold or silver coins because they have a legal tender and that would mean taxing all physical money if they did. However we pay VAT on silver and platinum but not gold because HMRC see the former as an industrial as well as investment product,. With gold less so..... 

for me I view my “bullion” as all my investment products that do not have a numeristic value I.e.my bars and non proof or uncirculated coins. Even my collection of poured silver I view as artistic and not bullion and therefore some intrinsic value

[SilverJacks]

a precious metal manufactured into an item that is recognised for its value by weight and purity. That's my best effort...

[stackerp5]

For me, bullion is any shape or size ingot of high fineness precious metals.

As for numismatic I believe there are existent definitions and the etymology of the word can help establish a base. However it is relative/subjective how far you can stretch an interpretation of "old and valuable".

Just my 2p on this. I'm interested in seeing other comments  

[Pete]

Bullion to me is a piece of metal or "token" of known specifications, mass produced and sold with a defined purity on the commodity market.
Added features like monetary value, legal tender etc. are just a historic gimmick.
Some mints will adopt a theme - wildlife for example - solely to sell more by expanding their customer base.
Bullion is probably limited to gold, silver and platinum.
Copper, tin, aluminium and lead would not be classed as bullion nor would uranium so its not just based on price or density.

[sixgun]

As we have discussed elsewhere on the forum, bullion is not legally define in the Hallmarking Act 1973. In the UK if you sell precious metal other than "Any raw material (including any bar, plate, sheet, foil, rod, wire, strip or tube) or bullion." it must be hallmarked. 
Some people get a bit confused by the way the legislation is written here - where they have put (including any bar, plate, sheet, foil, rod, wire, strip or tube) - these a simply examples of the form in which the raw material might take. It doesn't mean in my opinion at any rate that any bar is raw material b/c clearly there are plenty of precious metal bars which you would not define as being simply raw material.

The legislation assumes there is a usual English term for bullion and it is known what it is. 

Bullion is a finished product - it is not raw material or else there wouldn't be a separate mention of bullion. However the work done on it is not so much that it's value is not principally due to its precious metal content.

So a piece might a plain lump of silver with the maker's mark, its weight, purity and serial number on. This is bullion and one would not expect to pay a huge premium on it. On the other hand you might have a lump of silver in a fancy shape and the like, which gives it more value than a simple piece of silver.

You might have coins and rounds. Proof coins/rounds clearly aren't bullion. Brilliant uncirculated aren't bullion. Collector's editions aren't bullion. However bog standard ASE's, Maples, Britannias and so on are bullion. We might see them at significant premiums these days but that is recent and a function of the price of spot which does not reflect the value of the metal. 

Chards have put a definition.
https://www.chards.co.uk/blog/what-is-bullion/213

 

[GoldenGriffin]

Interesting post.

I see bullion as a metal of any shape and weight (not just coins), that was bought near to spot price at the time of purchase, does not have an issuing COA by the mint and its true value always follows close to spot price.

Numismatic coins have 2 values associated with it;

1) the intrinsic value of the metal.

2) the Numismatic value (the collectable elements associated with a coin). 

Both values fluctuate at different rates and the Numismatic element tends to increase at a faster rate compared to the intrinsic value.

Numismatic coins have a significant premium above and beyond the intrinsic value (as a minimum 70% above spot on initial purchase).

Bullion is primarily only linked to the intrinsic value of the metal (spot price).

 

[Stuntman]

The value of the item has no bearing on whether or not the item is bullion.

For example, if there were only a handful of 2021 bullion sovereigns produced (and in this context, I am using 'bullion' in the sense of it not being struck as a proof or brilliant uncirculated sovereign, both of which are produced to higher standards of qualiy - Insert your own RM quality control joke here...) - then they would command an enormous premium to collectors but they are still intrinsically the same product as a 2020 sovereign, struck in the hundreds of thousands I suspect.

The word bullion derives from the French for boiling - i.e. melting the precious metal.

I agree with those who have said that bullion is about an item manufactured from precious metals that have been refined, and described by weight and fineness.

 

[GoldenGriffin]

Also, here's a video from the Royal Mint, with a general overview of the differences between proof, brilliant uncirculated and bullion coins.

 

 

[Bimetallic]

On 11/04/2021 at 00:31, GoldenGriffin said:

Also, here's a video from the Royal Mint, with a general overview of the differences between proof, brilliant uncirculated and bullion coins.

 

 

Interesting. They're using the term bullion differently from other mints. Most government mints don't have a "bullion" product distinct from "brilliant uncirculated" – they start with brilliant uncirculated. BU is the baseline for mints like the US Mint, the bottom level, mass produced coin.

[Bimetallic]

On 10/04/2021 at 14:18, Stuntman said:

The value of the item has no bearing on whether or not the item is bullion.

For example, if there were only a handful of 2021 bullion sovereigns produced (and in this context, I am using 'bullion' in the sense of it not being struck as a proof or brilliant uncirculated sovereign, both of which are produced to higher standards of quality.

 

What are you referring or responding to in your first part? What's the issue with the value of the item? By value do you mean the price?

For designing a clean and smart consumption tax, I think a good framework would be to exempt the melt value of precious metals + some percentage over that to account for premiums on bullion. A consumption tax could be a uniform retail sales tax (UST) on all goods and services, or a uniform VAT on all goods and services, or a flat consumed income tax (CIT) where individuals pay a flat rate on their income minus any and all investment and savings. All three schemes are economically equivalent and tax the same thing, the same base. (I'm evolving toward a consistent anti-coercive tax position, growing convinced that voluntary funding mechanisms are preferable and practical, which would rule out a consumption tax, or any tax. But I'm not quite there yet.)

The interesting thing about exempting melt value + some margin is that it eliminates the need to define bullion. In this system we'd only be concerned with precious metals content, and its melt value or spot price. I wouldn't even make the exemption exclusive to bullion – it would apply to all gold, silver, platinum, and palladium, in any form. There's no basis for a government to dictate the form in which people invest in or procure precious metals. Gold is gold. Silver is silver. And in some cultures like India people buy gold in simple jewelry form, typically as gold chain that is cut to the specified length.

So to your point about the definition of bullion not depending on value, I think it's a bit complicated. In this scenario where only melt value + some margin is exempt, products with huge premiums will be taxed on most of that premium. This implies that for our purposes, extremely expensive products (in terms of premium over spot) don't count as bullion if we're saying that we're exempting bullion, or that we're trying to exempt bullion. This in turn rests on an assumption that our melt + margin system is basically designed to exempt bullion, since the margins will be set at levels intended to cover normal market premiums for precious metals bullion like Silver Eagles, Gold Maple Leafs, bars, etc.

For example, I'd set the margin for gold at something like 5-6%, silver at maybe 20-25%, and probably add a constant to help cover higher premium fractional sizes, like 1 or 5 gram gold bars, tenth-ounce gold coins, quarter-ounce silver rounds, etc. This means something like a 1 oz silver Marvel superhero coin costing $70 would be hit with the uniform sales tax or VAT on the increment over melt + say 20%. With spot at $26.08, spot + 20% is $31.296. $70 - $31.296 = $38.704, the tax rate would be applied to that increment, which is more than half the total price. This implies that we're not treating it as bullion for the most part, because of its price/value.

The point of exempting melt + a margin is to not exempt collectibles, fancy jewelry, etc. since this is supposed to be a clean and economically sound consumption tax. Since precious metals are both investments and money-like goods, we can't tax them in a properly designed consumption tax system. We wouldn't tax money itself, i.e. currencies, currency exchange, or ATM withdrawals. Nor would we tax investments. Therefore we can't tax precious metals, since they qualify as both. But some ancient Greek half ounce silver coin priced at $400 is something else, as is a high fashion gold necklace costing five times its melt value. Therefore, it looks like we need a melt value based scheme, with some margin for bullion premiums. It avoids the need to rigorously define bullion, though it does imply that we're defining it by the size of its premium over spot.

[GoldenGriffin]

2 hours ago, Bimetallic said:

Interesting. They're using the term bullion differently from other mints. Most government mints don't have a "bullion" product distinct from "brilliant uncirculated" – they start with brilliant uncirculated. BU is the baseline for mints like the US Mint, the bottom level, mass produced coin.

Very interesting that BU is the baseline everywhere else.

Thanks for sharing that.

[Bimetallic]

1 hour ago, GoldenGriffin said:

Very interesting that BU is the baseline everywhere else.

Thanks for sharing that.

Yeah, the variables are normally just proof and relief.

Holding the actual design of the coin constant, mints like the US Mint and Royal Canadian Mint might offer proof, reverse proof (the "frosted" look), and high relief. So there are four possible combinations of proofness with normal or high relief.

I think I also might have seen "ultra high relief" coins from some mints, but I'm not sure.

I just now wondered if the major mints are issuing proof versions of their latest high security coins. It seems like it might be physically impossible to apply a proof finish to a variable and uneven surface. The new Britannias have lots of wavy and textured surfaces as part of the new security features, and the Maple Leaf has those dense fine radiating lines. I haven't noticed if they still do proofs.

You'll normally see the "BU" label on almost everything in stock at online dealers. Look for Eagles and Maples and you'll see what I mean. It's equivalent to saying the coin is new, as opposed to "secondary market" (items previously owned by individuals that were then sold to the dealer). Since the mint baseline is BU, saying it's BU just signals that it's brand new. The equivalent in the world of banknotes is "UNC", on any banknote listings where the notes are uncirculated, new basically. But they don't have any use for the B for Brilliant since they're paper/polymer sheets.

Some dealers are adding another variable to the BU baseline, at least in the US. There's a trend of offering new/BU coins sealed in permanent plastic packaging and "certified" as being directly from the mint. The packaging is similar to what the grading services use for graded coins, but I assume it's not quite as robust. This is apparently what happens:

1. The dealer receives the monster boxes from the mint or a wholesale distributor (most dealers can't order from the US Mint directly – I'm not sure about other mints' policies).

2. They have an employee unpack the coins.

3. They have the same employee or perhaps a different employee take a coin and a certification card and put it through the plastic package sealing machine.

4. They then add maybe $1.50 - $2.00 to the price per coin and ship it to you as per usual.

APMEX calls it MintDirect. SD Bullion calls it MintCertified. Kitco calls it MintFirst. If I ever go into the business, I'm going to call my version MintFresh. 😑 It started a few years ago and now everyone seems to be pushing this gimmick.

The rationale I heard from SD Bullion was that some customers really wanted the assurance of knowing that the coins were "direct" from the respective mint and sealed immediately upon receipt without any other handling or changes in ownership or something. It's not clear how these programs are different from the default situation with new BU coins. I think in most cases the steps I listed above are the same steps any new BU coin goes through, except for the plastic packaging. Most of the time, if you buy BU current-year coins, you're getting exactly what they're describing – essentially untouched, brand new coins. I'm not sure what other scenarios there are. Maybe there's a concern that some current year coins might be secondary market, but in that case I assume they can't legally say "BU" for those, so I'm not sure where the value added is on these mint direct programs.

For the Royal Mint, I wonder if anyone has evaluated their "Bullion" and BU coins against what all the other mints are calling BU. Are Bullion coins from the Royal Mint less shiny than the default BU from the US Mint, RCM, or Perth? Or equal? That would be interesting. I have no idea what version my Britannias are – I should check.

[GoldenGriffin]

Interesting.

would packaging a coin into something similar to a graded coin from NGC or PCGS, discourage people from sending them off for grading?

I think it would to a degree.

I always thought BU (Brilliant Uncirculated) was a certain quality strike of a coin (Brilliant), inbeween bullion grade and proof, which is not to go into circulation.  I didn't know there were other definitions i.e. that it only means new from the mint and not necessarily the quality of strike.

I have, what I class as bullion (bought at close to spot price) or come to think of it, some could be classed as BU / proof (a gold panda), which I would say is proof quality (has mirrored fields on one side and frosting) with maybe a BU finish on the other (the panda design).

The RM bullion coins don't have any mirrored fields or frosting and the quality of strike and finish is, I would say, significantly less than some other mints.

 

[Stuntman]

@Bimetallic - I think that the Royal Mint 'bullion' coins are the equivalent to the 'BU' coins that you refer to from other National Mints.

BU (as in Brilliant Uncirculated) usually refers to the grading of a non-proof coin, regardless of the type of strike or the quality of the blank. So if a coin has never been circulated, and has full mint lustre, it can, and should, be described as Brilliant Uncirculated.  This applies equally to a circulating currency coin and a precious metal coin that is not designed for circulation.

The fly in the ointment is that the Royal Mint also issues precious metal coins that are not proofs, but which have better prepared blanks and more strikes per coin than the 'bullion' coins, but less well prepared blanks and fewer strikes than 'proof' coins.  They call these coins 'Brilliant Uncirculated'.  They are significantly different to 'bullion' coins.  For example, most of the non-proof Quintuple sovereigns and most of the strike on the day sovereigns are struck to this 'BU' standard.  This distinguishes them from the coins called 'BU' from other mints, which generally refers to their grade rather than their preparation and strike.

When I was saying in an earlier post that the value of the coin did not determine whether it was bullion, I was trying to decouple its price (value) from its method of striking.  So if you had an ultra-rare and desirable coin that was struck as a bullion, it would always be bullion, even if was worth a million pounds.  A 'BU' strike on the day sovereign would never be just 'bullion' on the same definition, nor would a proof quarter sovereign ever be bullion, even if it is worth less than £100.

Clear as mud? 

[LawrenceChard]

On 09/04/2021 at 22:00, Bimetallic said:

Hi all – I need a perfect definition of precious metals bullion for a tax reform project I'm working on.

What comes to mind when you think of what bullion is, fundamentally, and how you'd define it rigorously?

Note that I've sometimes seen people define bullion as exclusively the government minted stuff, or even coins specifically (coins being defined as having a nominal value). I mean bullion in what I understand as the more common definition that includes both government minted and privately minted products.

But what is it, precisely? What makes an object "bullion"?

Note also that a good definition can't specify a fineness or purity. Reason: We have to let the market decide to allow for innovation and changes in preferences. Any government dictated fineness is ultimately arbitrary and makes no sense. And in actual practice, government definitions in Singapore, Australia, and New Zealand, for example, dictate unreasonable fineness levels of 99 or 995, which excludes some of the most popular bullion in the world, like American Gold Eagles, Gold Krugerrands, Sovereigns, pre-2012 Silver Britannias, and pretty much all coin silver (aka "junk" silver).

If someone wants to offer bullion products in a silver alloy similar to Britannia silver (958 fine) or Sterling (925), or any other purity, they should be free to do so without being tax-disadvantaged. (I for one would love it if a mint used Argentium silver for bullion bars. It's a great alloy, much harder and tarnish-resistant.) We can't predict what people might invent or develop as far as bullion alloys and purity levels in the future, so a good legal framework should let the market decide.

In some US state laws I see phrasing like "ingots sold according to its precious metal content and not form".

That comes up often in definitions – the idea that bullion is sold or defined by its precious metals content – the weight – as opposed to other factors like numismatics or collectible nature. One challenge is that I'd want at least the precious metals content in numismatic items to be tax-exempt, while taxing some increment above its melt value.

What do you think a good definition would be? What are the essential characteristics of bullion?

Thanks.

Before you can arrive at a perfect definition of precious metals bullion, you really need to start with a good definition and understanding of the word "bullion".

My first choice reference source is "The Oxford English Dictionary". It includes the etymology, which is worth knowing as it helps in understanding the word.

"Bullion" appears to come from old French buillon, meaning boiling, and it thought to refer to melting.

Bullion does not just apply to precious metals, but also to base metals such as iron or lead, and non-metallic things such as salt or soap (because they are produced by boiling).

I have included definitions and discussions of the word "bullion", and its misuse, a number of times, on a number of our web pages, including:

https://goldsovereigns.co.uk/bullion.html

https://goldsovereigns.co.uk/bullionsovereigns.html

Bullion or Proof?
Some confusion over the meaning of the word bullion seems to have arisen recently, and been caused by the Royal Mint.

Gold sovereigns used to be a circulating coin, but the last date sovereigns were minted after they ceased to circulate was 1932. no sovereigns were then issued until 1957 when the Mint resumed production to meet world demand for sovereigns as bullion coins, and to help control the number of forgeries which had started to be produced. These sovereigns were simply referred to as sovereigns or gold sovereigns, and were issue in most years until 1982 when production stopped. In 1979, the Royal Mint started to issue proof sovereigns for sale to collectors, and this still continues. In 2000, the Royal Mint decided to restart production or ordinary or normal non-proof sovereigns. To differentiate them from the proof version, they appear to have decided to call them bullion sovereigns, despite the fact that they are sold at prices which represent a considerable premium over their intrinsic metal value. Why they could not stick to established usage and call the non-proof sovereigns uncirculated, we will probably never know. The Americans solve this problem by calling non-proof coins a "business" strike, presumably so-called because it reflects the main business that a mint is involved in.

https://taxfreegold.co.uk/bulliondefinition.html

Melt Value

One thing that I seem to have omitted in the above, is that bullion is usually something which is traded at or close to its "melt value", neatly reconnecting and recognising the word evolving from the French buillon (melt).

BTW - "Bullions"

We sometimes see people and websites talking about "a bullion", or "bullions", often referrring to bullion bars as opposed to bullion coins. This is of course illiterate nonsense, usually from non-native-English speakers. The word "bullion" is what is known as a "mass noun".

If you manage to persuade the State of California to allow favourable tax treatment for bullion, most TSF members would like you to transfer your skills of persuasion to the UK government and tax authorities, to convince them that silver, platinum, and palladium coins and bars should be exempt from our VAT, as investments, similar to "investment gold".

 

 

[TutoredSoup232]

Royal mint uses the strike and finish to determine grade. However they also like to play fast and loose with that definition when it comes to poor quality production ie. Scratches, scraps, dents etc.

[RacerCool]

On 09/04/2021 at 15:10, SilverJacks said:

a precious metal manufactured into an item that is recognised for its value by weight and purity. That's my best effort...

I'd go with this definition.