How do "Bonds" work, investing in a bond means what?

Question

Basically, what is a bond?

Are gold and silver considered bonds? Are all bonds treasury bonds ?

Answer 1

Without getting too techinical.  A bond is very simple.  The government says you buy this bond for 100 bucks.  We will give you 104 a year for 10 years.   Or they will say you buy this bond for 89 dollars in 10 years we give you 100 bucks.

They are sold on open auction.  Gold and Silver are in the same group, as well as corn, grain, oil ect.  They are all considered futures.  You are buying something you expect in the future.

They are not like stocks, unless you can deliver on the product.   You actually dont own it.  You invest in what you think might happen.  Less then 3% of all trades made on the bond or futures market ever happen.  They trade them away.  They are called speculators.

Short example I give you corn.  A farmer is scared about price, so he sales it in the winter for 4 bucks a bushel.  Its not due for 6 months.  The farmer is stuck at the 4 bucks but he knows what he is getting.  Somebody else might buy that and sell it for 6 bucks.  The difference is price doesnt go to the farmer.  Farmer already sold it for 4.  Other times prices might drop to 3 bucks.  The farmer still gets 4 bucks on delivery.  The speculator taking the risk of what it sells the day of (in the future) is the one taking the risk.

Bonds work the exact same way.  They are all futures.  If I didnt answer your question email me.  Its like if you buy 100K in gold.  You cant walk into the bank and say where is my gold?  You have a bond against it, its not your gold, you are trading the future on it.  Safe investment.  But you dont own it.  Somebody already bought it, you are just playing the market.

Now bonds you can invest, but the point is can you take delivery?  You can sell it without owning it, but you have to make up the difference when you get out.  You can sell 1 Million in corn and not be a farmer.  But you have to be able to deliver it when it comes do, or you have to sell it to somebody that can.  Thats how the bond and future markets work.

*** update ***

Technically I dont know is correct.  I just assumed you were investing in these things. Unless you go to the jeweler and buy a ring that is gold.  Its a future.  A bond.  So is silver, corn, ect.  If you dont expect to take delivery as I said above, you are invested in a bond.

http://www.investorwords.com/521/bond.ht...

Answer 2

To be too simplistic: Buy bond = Lend money. When the government needs money, they will try to borrow money. But because the government financing needs are so huge, no bank can possible afford to lend. So the government goes the public (bond market) and imagine they want to borrow $1 billion. They would issue 10 million bonds each worth $100 so that everybody can lend/ buy bonds according to how much they can afford.

Similarily, companies (especially big ones with big financing needs) can raise money either by selling stocks (people investing) or selling bonds (people lend) (and sometimes they simply go to banks when the sums are not big or if they need money only for very short time). So governments, agencies, municipalities, corporations issue bonds and sell them to the public with different maturities and coupon rates.

Maturity refers to how many months or years (from 3 months to 20 years) the bond is outstanding when the government/ corporation pays you back the principle (the original $100). The coupon are interests paid to you for the loan, it may be paid every 3 months, 6 months, 1 year ... or never (as in 3 month government treasuries).

The other benefit to bonds, as opposed to borrowing from a bank, is that it reduces risk and increase liquidity, because imagine you buy a 20-years bond and after 1 year you no longer interested in holding it. You can be able to sell it in the (secondary) market without the company/government having to pay you back before maturity.

Gold & Silver has nothing to do with bonds (except maybe they are all differnt types of asset classes). Futures are derivatives based on assets (stock, commodity, bonds, interest rates, other futures/derivative contracts ...) so it is not a common feature between gold/silver and bonds since they work the same way for anything you may think of.

And not all bonds are treasuries as I said. They might be agencies (Freddie Mac), Municipalities (munis), Corporate bonds ...

Answer 3

http://www.investopedia.com/university/b...

Gold and silver are not bonds.  They are commodities.

Answer 4

Go to Yahoo Finance - you can find bond information there.

Answer 5

Can't believe the answer that basically told you to go look it up got a thumbs up, and a detailed answer got a thumbs down but maybe you didn't understand.  So I'll take this to a fifth grader level.

A bond is a loan. You are the lender.

Investing in a bond means you initiate a transaction as a lender. As with any financial investment transaction there are different options and different levels of risk.

Not all bonds are treasury bonds. A treasury bond is one backed by the treasury department of the government by which it is issued. Basically the government is the borrower and you are the lender. So some people consider these to have less risk.  

Are gold and silver bonds? No.

Gold (Au) is a metal. Atomic number 79

Silver (Ag) is also a metal. Atomic number 47

They are commodities that can be traded (clarification.. Financing is correct: Gold and Silver can be traded as bonds. You can also trade them in bars.. but this is less popular).

Basically, if you're not smarter than the fifth grader.. stick to the lemonade stands because you and bonds would be dangerous.  If you want to get smarter  .. try investopedia.com