Gold Commodities: Measure Up! - dummies

By Amine Bouchentouf

Gold, like most metal commodities, is measured and weighed in troy ounces. One troy ounce is the equivalent of 31.10 grams. (Despite the common misperception, the troy ounce does not take its name from the mythic ancient Greek city of Troy. It’s named after the French town of Troyes, which was an important center of trade and commerce with a thriving precious metals market during the Middle Ages.)

When you buy gold for investment purposes, such as through an exchange-traded fund (ETF) or gold certificates, troy ounces is the measurement of choice.

When you want to refer to large quantities of gold, such as the amount of gold a bank holds in reserves or the amount of gold produced in a mine, the unit of measurement you use is metric tons. One metric ton is equal to 32,150 troy ounces.

If you’ve bought gold jewelry, you may have come across the following measurement: karats. Karats (sometimes spelled carats) measure the purity of gold. The purest form of gold is 24-karat gold (24K). Everything below that number denotes that the gold is alloyed, or mixed, with another metal.

Karats Purity (Percentage)
24K 100%
22K 91.67%
18K 75%
14K 58.3%
10K 41.67%
9K 37.5%

If you buy physical gold for either adornment (jewelry) or investment (gold coins/bars), you want to get the purest form of gold, 24K. If you can’t get 24K gold, aim to get the purest form of gold you can get your hands on. Remember that the purer the gold, the higher its value. Pure gold (24K) is always a yellow color.

However, you’ve probably encountered white gold or even red gold — these other colors are created by alloying gold with metals such as nickel or palladium for a white color or with copper to create red gold. By definition, white and red gold aren’t pure gold.

Whereas purity measures how precious gold is in a percentage basis, fineness measures gold’s purity expressed as a whole number. Fortunately, fineness and purity are so similar that gold with 91.67 percent purity has a fineness of 0.9167.