Who Buys Bullion? You’d Be Surprised…
By Paul Vanguard, for BullionMax.com
I'm tempted to answer my own question with a simple and dismissive prudent investors and go home and kiss my wife.
But if you really think about the question, it's a subject worth getting into. There are definitely some misconceptions about who buys gold bullion, how and in what amounts.
I called up a friend of a friend and asked. Our conversation went something like this…
Me: So, If I asked you who buys bullion, gold bullion, what would you say?
Dave : (long pause) Wow. I wasn't expecting a quiz. Seriously? Okay, um… Central banks, right? Like Fort Knox, don't countries all have a big pile of gold?
Me : Good answer. I was thinking about individuals, you know, private citizens.
Dave: (he's starting to sweat now) Okay. Uh, there was that one guy in the Michael Lewis book. He bought a bunch of gold. And, um, anybody getting married?
Me: Got it. Thanks.
Dave's an okay guy (though he prefers Michael Lewis to Matt Levine, which makes him suspect in my book). Let's take a look at his answers…
Bullion buyer #1 - central banks
Anyone who thought hard about it might guess central banks are the biggest bullion buyers. We've all seen stock photos of Fort Knox or the Federal Reserve Bank of New York with their vaults stacked with gold bars worth billions of dollars. That's a solid answer!
Turns out it's wrong. The World Gold Council tracks data like this, and they report that the world's central banks, combined, bought a mere 7% of the bullion sold in 2020. Even so, it's important to remember that their billion-dollar purchases are a powerful enough force to keep gold prices supported even during bearish stretches.
So who's beating the big buyers, then?
Bullion buyer #2: Kyle Bass
Okay, this took some digging… Turns out Dave was talking about the hedge fund manager Kyle Bass, featured in the Michael Lewis book Boomerang. Bass made a bundle during the 2008 financial crisis. A quick Googling reveals an estimated net worth of $2.5-$3 billion.
Here's what Business Insider had to say:
Now he's betting all of his money that sovereign debt will be the next big thing to take down the world.
He even told his mom: "You need physical gold." He explained that when the next crisis struck, the gold futures market was likely to seize up, as there were more outstanding futures contracts than available gold. People who thought they owned gold would find they owned pieces of paper instead.
Aside from gold bricks, he also keeps platinum bars. Some is in his desk at Hayman, some is in vaults in Houston.
Interesting that Bass wasn't willing to hold paper gold, hmmm?
Another look at the WGC data reveals that mint bullion coins, bullion bars and rounds sold to investors comprised a total of 24% of the total bullion demand in 2020.
That's actually more bullion than ETFs and similar paper-gold funds bought (23%).
What's going on here? How is it that private investors, plain old everyday folks like you and me, are buying more bullion than the whole world's central banks? Or is it just one or two high-rollers like Kyle Bass loading up their vaults?
This may or may not come as a surprise, but almost no one in America is willing to talk about whether or not they buy bullion. Polls attempting to suss out gold ownership over the last few years have wildly different results ranging from 1% to 15%.
James Ledbetter, editor of Inc. magazine, puts it like this:
While we may think that we live in a more accountable era, our lack of knowledge about gold ownership suggests otherwise. Back when all major currencies were tied to gold, there were economic (and, arguably, national security) reasons to be vague about how much metal resided where. Yet even after a half-century of a floating currency in this country, a legacy of secrecy still surrounds the metal.
That "legacy of secrecy" is both understandable and incredibly frustrating.
After all, private gold ownership was outlawed in 1933. For over 40 years, right here in the home of the free, owning gold was a crime. That paired with the Great Depression? That left some deep marks in the American psyche.
For example: I've mentioned my great-grandfather Willard before. He was a thrifty, savvy and ultimately skeptical guy. Way back in 1933, he decided to break the law and held onto a number of gold eagles. He kept them hidden away for nearly fifty years before he dug them out and distributed them to his grandchildren and great-grandkids.
If Gallup called Papa Willard, there's no way he'd tell a stranger on the phone, "Well yeah I got a few gold coins around here somewhere." Not only is it none of their business, it's terrible OPSEC.
Even today, 47 years after private gold ownership was legalized in the U.S. bullion buyers want privacy. They don't want to be robbed or audited.
I'll keep their secrets. Since I'm on the inside, selling gold and silver bullion directly to buyers, there are a few things I can clue you in on…
Here's who buys bullion (at least from us)
Last year, we shipped bullion to all 50 states, red, blue and purple.
Our customers buy gold bullion in weights ranging from 1 gram all the way up to 10 oz. The reason we offer free shipping for orders over $199 is to encourage bullion buyers who don't have several thousand dollars to spend all at once.
Know what? It works. Those 1 gram gold bullion bars are incredibly popular, so much so they're hard to keep in stock. They're less efficient on a per-ounce basis, but the low cost per unit is truly appealing.
On the other end, we see Kyle Bass-type bullion buyers, too. Our average order is redacted, but our biggest orders clock in at redacted, 470x larger than the average order. (Just to be clear, these are all private individuals I'm talking about. I'm not including business-to-business transactions.)
So who's buying bullion?
Americans from every state in the nation, who have wildly varying amounts of money to spend.
Honestly, the only truly unifying characteristic is they're buying from BulllionMax. Otherwise it seems like a cross-section of America.
That's awesome. That's exactly what we wanted to deliver when we first started selling direct. To tell the truth we get more excited about selling ten 1 oz bars to ten different people than a single 10 oz bullion bar. Yeah, it's more of a hassle to verify, pack and ship.
But it means ten different people are buying bullion. Ten different people are going to experience the joy of opening their package after its long journey and holding tangible value in their hands.
In other words, Dave got it wrong. Everybody's buying bullion. Not every single individual, exactly. People from all over, wealthy and struggling, young and old. Everybody.
Paul Vanguard is a lifelong precious metals enthusiast and a proud member of the BullionMax team.