Small Gold Bars vs Large Gold Bars: The Liquidity Trade-Off

In some cases, investing in gold may seem like an obvious choice. All an investor needs to do is determine how much to invest, find a trustworthy gold-bar dealer, and arrange for secure storage. Nevertheless, most people are unaware that size is another important aspect. Gold bars weighing 10 grams and 1 kilogram may both be suitable for gold investors, but they serve different purposes when it comes time to sell.

The first thing that matters is liquidity (the ease with which the investor liquidates part of the gold investment into cash without having to sell more gold than needed). By gaining knowledge of the strengths and weaknesses of small and large gold bars, Australian investors will make wise investment decisions.

What Makes a Gold Bar Liquid?

Although gold is traded internationally, the liquidity of each individual bar does not depend only on the purity of the metal. Several factors can affect the ease of selling a gold bar, including its weight, purity, refiner or mint, condition, documentation, and the buyer’s policies.

Under Australian regulations, an investment gold product must meet specific fineness and form requirements to qualify as ‘precious metal’ for GST purposes.  At least 99.5 percent of the gold is in investment form.

Hence, there is a need for products from reputable refiners and mints, whose characteristics and authenticity can be easily proved.

The Case for Small Gold Bars

Small bars, such as 1g, 5g, 10g, 20g, and 1oz bars, give investors greater flexibility by allowing them to hold their gold in smaller units.  This may be beneficial if an investor does not desire to liquidate an entire investment. For instance, an owner with 10g bars is able to sell just what they need, instead of a larger bar.

The Perth Mint makes gold bars in denominations of 1 gram to 10 ounces, each of which is individually sealed in tamper-evident presentation packaging and has a unique serial number.

Small bars can also offer some flexibility to investors who are putting their money into a position little by little. An investor can invest in smaller units periodically instead of investing large sums in a single bar.

This flexibility is not free, though. Smaller bars have higher premiums compared to their gold content since the cost of production, packaging, distribution, and handling is a greater percentage of the bar's price.

The Case for Large Gold Bars

Larger bars would attract people who wish to purchase more gold but in lesser physical form. As the weight of the bar increases, so would the production cost become lesser in relation to the value of the metal. Large bars would therefore become easy choices for people who wish to purchase substantial amounts of gold in physical form but need not manage many gold coins.

For instance, the Perth Mint has published a depository product schedule with 1oz, 5oz, 10oz, 20oz, 50oz and 1kg gold bars.

The problem with the trade-off is that it becomes evident when someone needs liquidity. Selling an investor's entire bar of gold may result in a significant amount of gold being liquidated if the investor has a 1kg bar but needs to raise only a small amount of cash to cover a relatively small expense.

Premiums Versus Flexibility

The main issue here is the cost of purchase and future flexibility. There could be a situation where a smaller bar costs more per gram than a bigger one because the fixed costs of manufacturing, packaging, and delivery represent a larger proportion of the value of a smaller bar.

However, the higher premium could be a worthy one, namely an opportunity to sell bits of the investment. The investor loses some divisibility, but gains some economy per gram when buying a bigger bar. This explains why not all the least expensive-per-gram investments are good for everybody.

Why a Combination Can Make Sense

Investors do not need to stick to one size only. Mixing up the small and big bars will give a balance between efficiency and flexibility. For example, one could make use of a bigger bar that would serve as a huge physical gold holding, and the smaller ones would allow making sure that small investors will be able to sell off their investments at some point in the future.

The correct mix will depend on the investor’s objectives, available funds, location, storage arrangements, and how quickly they may need to liquidate the investment. 

When selecting the size of a gold bar, take into account the following:

• The amount you want to invest in physical gold
• Whether you may need to liquidate part of the investment
• The price per gram for different bar sizes
• The reputation and recognizability of the refiner or mint
• Packaging, documentation, and serialisation
• Available storage options
• The dealer’s buyback terms
• Minimum and maximum purchase amounts
• Resale potential and associated costs

This list of considerations can be used to make sure that the physical representation of the investment matches its intended purpose.

Choosing Gold Bars with Liquidity in Mind

There is no one size of gold bars that is considered ideal. The factors of efficiency in terms of divisibility and flexibility become more significant in the case of small bars, whereas larger bars can be used in the case of larger investments. The right choice depends on the investor’s preferences, including their need for partial liquidation, lower premiums, convenient storage, and other factors discussed above.

When trading with Perth Bullion Exchange, it becomes essential to understand the subtle differences among various forms of bullion before making investments in them. It is also necessary to know the sizes available, specifications, and requirements for repurchase before investing, to make the transition smoother.