Sunday, October 08, 2006

Gold Coins and Bars Series - Part 3

Part 3 of a 3 part series

Gold can be bought and accumulated in coin, bar and ingot form as well as Exchange Traded Funds where one holds a certificate or a piece of paper that represents ones holdings in gold stored in a bank or mint.

Gold is measured in carats. Carat or karat, both spellings are used, is a measure of the purity of gold. In the United States and Canada, the spelling karat is usually used for the measure of purity, while carat refers to the measure of mass (see Carat). As a measure of purity, one carat is one twenty-fourth purity by weight:

X = 24 \frac{M_g}{M_m}


X is the carat rating of the material,
Mg is the mass of pure gold in the material, and
Mm is the total mass of the material.

Therefore 24-carat gold is pure gold (actually 99.99 percent as one cannot guarantee an absolute purity), 12-carat gold is 50% purity, 18-carat gold is 75% purity etc. The balance is made up of other metals such as copper, silver, platinum, zinc etc to increase the hardness of the overall alloy and sometimes to change the color of the gold, Platinum, for example, is added to produce white gold.

The carat system is increasingly being complemented or superseded by the millesimal fineness system in which the purity of precious metals is denoted by parts per thousand of pure metal in the alloy.

The most common carats used for gold in bullion, jewellery making and goldsmithing are:

24 carat (millesimal fineness 999)
22 carat (millesimal fineness 916)
20 carat (millesimal fineness 833)
18 carat (millesimal fineness 750)
16 carat (millesimal fineness 625)
14 carat (millesimal fineness 585)
10 carat (millesimal fineness 417)
9 carat (millesimal fineness 375)

Gold coins and bars, however, should be 24 carat but sometimes will be found to be less. In all cases the carat or fineness of the gold should be clearly marked or indicated.

With a gold coin, not only the gold content, but many other factors may determine the value of the coin, such as its rarity, age, condition and the number originally minted.

In July 2002, a very rare $20 1933 Double Eagle gold coin sold for a record $7,590,020 at Sotheby's, making it by far the most valuable coin ever sold to date. In early 1933, more than 445,000 Double Eagle coins had been struck by the U.S. Mint, but most of these were surrendered and melted down following Executive Order 6102. Only a few coins managed to survive. This has given them a rarity and an increase in value well above the gold content of the coins themselves.

It is important when looking to buy gold coins and bars to understand as much about gold as possible. Not just about coins and bars but about the metal itself. Get a feel or an affinity for the metal and you will be able to buy gold coins and bars satisfactorily. Real study, due diligence and perhaps a bit of common sense will go along way to improving your ability to accumulate gold coins and bars satisfactorily and profitably.

Final part of a 3 part series - Gold Coins and Bars

Gold Coins and Bars Series - Part 2

Part 2 of a 3 part series.

Before 1968 gold traded at a fixed price of 35 US dollars an ounce under the then gold standard. Following the decision of the USA government or more likely the Federal Reserve, to close the "gold window" and abandon the gold standard in 1970, gold began to rise over the next 20 years peaking at $850 in 1980. Gold then fell and 20 years later, by 2000 it was down to $279 an ounce. In recent years gold has been steadily rising and by September 2006 the price stood at around $600 an ounce.

These days the price of gold is established on a daily basis twice a day from a meeting of representatives from five bullion-trading firms. This is known as the London Gold Fixing. In addition there are active gold trades daily based on the intra-day spot price, derived from gold-trading markets around the world as they open and close throughout the day. This is known as the Spot Price of gold and this can be seen in the charts at the top of this web site.

One troy ounce is equal to 31.1034768 grams. Thus if gold was at $600 U.S. an ounce, for example, a gram would be worth $19.29.

Note also that where gold is measured in ounces, these are troy ounces, not the much more common avoirdupois ounce which is used for measuring weights in food etc. An avoirdupois ounce is lighter than a troy ounce. One avoirdupois ounce = 28.349523125 grams and there are 16 avoirdupois ounces in a pound.

One kilogram = 1000 grams = 32.15074656 troy ounces
One tonne = 1000 kilograms = 32,150.746 troy ounces
One tael = 50 grams

The current value of gold places a price of approximately $241,000 on a 12.5 kg (400 troy ounces) London Good Delivery bar of gold although of course this varies on a daily basis.

Gold bars are classified into two different types. Cast and minted. Cast bars are made by pouring molten gold into an ingot mold to help the gold to take a form. Minted bars are made from gold blanks that have been hand cut to the required dimensions from a flat piece of gold. In both cases, markings are almost always applied by presses.

Gold exchange-traded funds (or GETFs) are special types of exchange-traded funds (ETFs) tracking the price of gold. Gold exchange-traded funds are traded on the major stock exchanges including London, Paris and New York.

End of Part 2 of a 3 part series - Gold Coins and Bars

Gold Coins and Bars Series - Part 1

Part 1 of a 3 part series.

Gold has been an alluring attraction for man throughout the ages. Wars have been fought over it, love has been won by the use of it and merchants have been made wealthy because of it.

It has always been regarded as a precious metal and the first recorded use of it is in Varna, Bulgaria around 5000 BC. Gold has been in use as a form of money, in one form or another from at least 560 BC until the end of the Bretton Woods system in 1971. It has also been used as a store of value both by individuals and countries for much of that period right up to the present day.

With a melting point of 1063°C, it is a bright shiny, soft and malleable metal primarily used in coatings for electrical connections. Pure fine gold is 24 Karat (abbreviated K). Alloys of gold are calculated on a basis of 24 parts. 14K is 14 parts gold and 10 parts other metals. various gold colors are created by alloying other metals that impart their color characteristics to the gold.

Gold, and some other precious metals such as silver, platinum and palladium for example, are assets that are both tangible and liquid (i.e. easily traded), unlike real estate which is tangible but not liquid, or company shares and bonds which are liquid but not tangible.

Considering its high density and high value per unit mass, storing and transporting gold is very easy. Gold does not corrode and, in small amounts, is not particularly heavy. Historically, it has also been very easy to verify that an offered coin had the density of gold through the use of Archimedes' principle. Today, however, some metals are denser than gold yet cheaper.

Some of the reasons people buy and accumulate gold in coin and bar form include, as a hedge against financial and economic instability or to hide money or assets from, family, governments or others. Also as a hobby (usually confined to coin collecting but there are some who collect gold bars also)

Some people buy gold through a gold exchange-traded fund, or in the form of a gold certificate. In this case it is more like an investment and these people are more prone to trade or buy and sell the gold representations. In this case the gold is deposited in a bank and the owner has a certificate or account to represent their holding.

It is not difficult to see why gold is such a favorite choice of currency over the years. It does not tarnish or rust. It keeps its value relative to the value of other goods and services. With the advent of the internet the transfer of funds by the use of gold has become big business. These days, millions of dollars are moved around the planet literally at the speed of light.

End of part 1 of a 3 part series on Gold Coins and Bars.