How gold bullion is used

Gold bar - Wikipedia

If you’ve been looking around the gold industry, you will have come across the word “Gold Bullion”. What distinguishes bullion from other forms of gold is that it is a monetary asset. Gold bullion comes in the form of coins or bars which can be attractive and alluring on their own. The one important thing that makes gold bullion unique is that its value is derives from simply being made from gold- the best-known, and sought-after precious metals.

Gold as Currency

Gold bullion, is basically a kind of currency. Whether you buy gold bullion from government mint or a gold bullion dealer but it still is a form of money. Even the International Monetary Fund, which keeps the global economy on the right track owns gold bullion reserves worth billions of U.S dollars. Just ask about finance ministry or any central bank, they all hold gold bullion reserves either in vaults located in their own countries or they have their bullion stored in other countries.

Gold is regarded as the safe have resort, the last resort in case of a financial calamity. People turn to gold in times of crisis. There are countless examples where countries turned to gold to bolster their economy. For example during the financial crisis in 1997, women in South Korea gave their wedding rings to the government to recover the gold. During World War I, the British government withdrew all gold sovereigns from circulation in order to finance the war.

Gold Standard

Until the outbreak of  World War I, there was always an explicit link between gold and paper money. However from 1945 to 1971, most currencies got tied to the U.S gold which in turn was tied to gold. At that time the rate that the U.S dollar was tied to gold was at $35 per troy-ounce. This is what became known as the gold standard. This gold standard finally broke off completely when Switzerland decoupled the link between its currency and gold. The Expression: Gold Standard is still used today to describe anything that is of the highest quality.

The Monetary Role of gold

The “Gold Standard” might be gone but the precious metal’s monetary role lives on. This is why it is still the fall back “currency” when inflation and other economic calamities devalue currencies. When the Venezuelan currency lost value, the country turned to gold. Now people use gold to buy their normal things like groceries or even a cup of coffee. The monetary value of gold has remained through the worst of times which is why central banks hoard gold bullion. For an individual who would like to buy gold bullion for its monetary role, bullion coins are the best option as they are legal tender in the country of issue. For instance, bullion coins made in Australia will hold their link to the country’s currency.

In this digital age of cryptocurrencies, it may seem strange that one metal could mean so much to the global financial system but gold has held its value as a monetary asset throughout the years.

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