When purchasing precious metals, one of the most important things to consider is the purity of the bar or coin. It may seem like splitting hairs, but a slight difference in purity can equate to a big difference in value.
How the precious metal industry defines purity is different to how the jewelry industry defines it. When purchasing a gold bullion coin or bar, you will often be told the “fineness” of the gold as opposed to how many karats it is. This is because 24 karat gold is classed as “pure gold”, but it only needs to have a fineness of 990 to be given this classification, and the gold content of bullion coins and bars is often much finer than this.
All of the following measurements of fineness are classed as “24 karat gold”:
The differences between one grade and the next are very slight, as is the difference between 995 and 999.999 gold. As a typical investor, these differences will mean nothing, but if you are buying in large quantities, and if you insist on only the very best, then it’s worth paying attention to.
You may also see the purity referred to as a percentage amount, although this is usually only the case with gold that has a low purity. In such cases, you just need to remember that 0% equals 0 karats and 100% equals 24 karats. So, this means that gold listed as 50% pure, is only 12 karats.
There are several metals often added to gold to give it a different color or to make it stronger. This is not as common in the bullion industry as it is in the jewelry industry, but it is used. Popular gold coins such as the Krugerrand and the Sovereign both have metals added to them.
The most common purity of silver in the bullion industry is “fine silver”, but there is a misconception with many first-time investors that “sterling silver” is just as pure. The truth is that there is a grade of silver that is purer than both of these. As with gold, the differences between this grade and the one below it are infinitesimal, and insignificant to the typical investor. However, the differences between this grade of silver and sterling silver are definitely worth noting.
In the past, circulated coins were minted in purities ranging from 50% silver (as was the case with many British coins produced between 1920 and 1947) and 90% silver (as was the case with many pre-1960 Canadian and US coins). However, these days a cheaper cupronickel alloy is used.
Silver isn’t adulterated as much as gold. However, sterling silver is very common, and this contains just 92.5% silver. The additional 7.5% usually consists of copper, but other metals can also be used.
Contrary to popular belief, the purpose of sterling silver is not to reduce the quality of the metal in the name of profit, but to strengthen it in order to create functional items (sterling silver is used to create everything from tableware to cigarette lighters). Understandably, sterling silver is not as common in bullion coins or bars, as investors prefer the purer “fine silver”.