Demystifying Precious Metals: The Essential Glossary for Stackers

It’s easy to get overwhelmed when you’re starting out in precious metals. There’s a lot of terms thrown around and without the context it’s easy to get lost. There’s no magic to any of this. It’s really simple. Get started with our glossary by using the Table of Contents and jump to something you want to learn. This page will continue to be updated.

The Precious Metal Glossary

Let’s dive in…

Measurement & Purity

.999 vs .9999

At some point you’ll go to buy gold or silver and you’ll see the description saying something like “.999 Fine” or “.9999”.

This is referring to the quality of the metal. Some coins like the silver Canadian Maple Leaf coins are .9999. This means it’s 99.99% pure gold or silver. If the coin says “.999” then it means it’s 99.9% pure gold or silver. It’s really as simple as that. Coins that are .999 are slightly more durable than coins that are .9999 because they add other metals like copper to the coin to make the coin more durable or scratch resistant.

Keep in mind however, that when you go to buy a 1 oz coin and it says in its description that the coin has 1 oz silver, then that’s what you’re getting. Even if it it says .999 and it has copper in it, your coin will absolutely still have at least 1 oz of gold or silver in that coin.

A good example of this in practice is the South African Krugerrand. It contains 1 oz of 22-karat gold (.9167 or 91.67% gold). Even though 0.0833 parts are not gold, the round itself has still at least 1 oz of gold. This means when you sell a Krugerrand, it’s sell value will be worth 1 oz of gold.

Does .9999 or .999 matter?

Not really. .999 means the coins you get will be more durable than the .9999 coins. If you’re buying 1 oz of gold or silver from a reputable dealer, then you’re going to get at least 1 oz of gold or silver.

To some investors, having pristine coins matters and they’ll prefer .999 coins to ensure the coins don’t scratch as easily. To us, it doesn’t matter. We’ll store our metal away and not handle them very much so it’s a non-issue.

Fineness

Fineness is a measure of the purity of a precious metal, expressed as parts per thousand. It indicates the proportion of pure metal in an alloy, with 1000 being the highest possible fineness, representing 100% purity.

Key points about fineness

1. Fineness is commonly used to describe the purity of gold, silver, platinum, and palladium.
2. The fineness is typically stamped on precious metal products, such as jewelry or bullion, to certify their purity.
3. Common fineness values for gold include 999 (99.9% pure), 990 (99% pure), and 916 (91.6% pure, equivalent to 22 karat).
4. Silver often has a fineness of 999 (99.9% pure), while sterling silver has a fineness of 925 (92.5% pure).

Importance of fineness:

1. Quality assurance: Fineness provides consumers with a clear understanding of the purity and quality of a precious metal product.
2. Value determination: The fineness of a precious metal directly affects its value, with higher fineness generally commanding a higher price.
3. Legal compliance: Many countries have laws regulating the fineness of precious metal products to protect consumers and maintain market integrity.

Understanding fineness is crucial for anyone dealing with precious metals, whether for investment, jewelry-making, or consumer purchases. It ensures transparency and helps in making informed decisions when buying or selling precious metal products.

Note: Fineness and karat are both measures of precious metal purity, but they differ in their scales and usage.

Fineness:

1. Fineness is expressed as parts per thousand, with 1000 representing 100% purity.
2. It is used for various precious metals, including gold, silver, platinum, and palladium.
3. Fineness is more commonly used in the context of bullion, coins, and industrial applications.
4. Examples of fineness include 999 (99.9% pure), 9999 (99.99% pure), and 950 (95% pure).

Karat:

1. Karat is a fractional system based on 24 parts, with 24 karat representing 100% purity.
2. It is primarily used for measuring the purity of gold in jewelry.
3. Each karat indicates 1/24th of pure gold content in an alloy. For example, 18 karat gold contains 18 parts gold and 6 parts other metals.
4. Common karat values include 24K (100% pure), 18K (75% pure), and 14K (58.3% pure).

Conversion:

• To convert karats to fineness, multiply the karat value by 1000 and divide by 24. For example, 18K gold has a fineness of 750 (18 × 1000 ÷ 24 = 750).
• To convert fineness to karats, multiply the fineness by 24 and divide by 1000. For example, gold with a fineness of 900 is equivalent to 21.6 karats (900 × 24 ÷ 1000 = 21.6).

Karat

Not to be confused with “carat”, which refers to the weight of a gemstones, the karat, abbreviated ‘K’, is the measure of a gold’s purity.

The karat system is based on 24 parts. For example, 18K gold contains 18 parts gold and 6 parts other metals (18/24 = 75% pure gold).

A couple things to consider:

• Higher karat gold is more valuable due to its higher purity but is also softer and less durable.
• Lower karat gold is more affordable and more durable, making it suitable for everyday wear.

Melt Value

Melt value is the value of a precious metal object based solely on its metal content, disregarding any artistic, historical, or sentimental value. It is the price that a refiner or smelter would pay for the item if it were melted down and sold as raw metal.

Key points about melt value:

1. Melt value is determined by the weight and purity (fineness or karat) of the precious metal content in an object.
2. It is calculated by multiplying the current spot price of the metal by the weight of the metal content in the object.
3. Spot price refers to the current market price of a precious metal per troy ounce.
4. Melt value is often lower than the retail price of a precious metal object because it does not account for craftsmanship, design, or other factors that contribute to its overall value.

Importance of melt value:

1. Establishing a baseline: Melt value provides a fundamental understanding of the value of a precious metal object based on its metal content, separate from its aesthetic or collectible value.
2. Recycling and refining: When precious metal objects are sold for their melt value, they can be recycled and refined to create new products, conserving resources and reducing waste.
3. Investment decisions: Understanding melt value can help investors make informed decisions when buying or selling precious metal objects, as it represents the minimum value they can expect to recover based on the metal content alone.

It’s important to note that while melt value is a crucial factor in assessing the worth of a precious metal object, it is not the only consideration. Factors such as rarity, historical significance, and craftsmanship can significantly impact an object’s overall value beyond its melt value.

Troy Ounce

A troy ounce is a unit of measure used specifically for weighing precious metals, such as gold, silver, platinum, and palladium. It differs from the more common avoirdupois ounce used for everyday items.

Key points about the troy ounce:

1. One troy ounce equals 31.1034768 grams, which is slightly heavier than the avoirdupois ounce (28.35 grams).
2. The troy ounce is the standard unit of measurement in the precious metals market, used globally for pricing and trading.
3. The term “troy” comes from the French city of Troyes, a major trading center in the Middle Ages.
4. China has begun to use grams and kilograms to measure their legal bullion, departing from the troy ounce typically used everywhere else.

Importance of the troy ounce:

1. Standardization: Using a consistent unit of measure ensures clarity and uniformity in the precious metals market, facilitating global trade.
2. Pricing: Precious metal prices are typically quoted in troy ounces, making it essential for buyers and sellers to understand the unit.
3. Investment: When investing in precious metals, understanding the troy ounce is crucial for accurately assessing the value and quantity of one’s holdings.

It’s important to note that while precious metals are measured in troy ounces, smaller quantities may be expressed in grams (especially gold). The use of avoirdupois ounces is not a standard practice in the precious metals market. To avoid confusion, always confirm the unit of measure being used when dealing with precious metals.

Sterling Silver

Sterling silver refers to a specific silver alloy- specifically 92.5% silver or more commonly known as “Nine Two Five”. You typically find .925 Silver used in silverware (it’s where the phrase “born with a silver spoon in one’s mouth” comes from), plates, candle holders, and more.

The silver is 92.5% pure with a 7.5% added copper or zinc impurity to add hardness to the metal. Silver is antibacterial so it’s idea for silverware. In the past, where it was relatively difficult to keep things clean, having access to Sterling silverware was a way to promote healthy eating. And since it’s mostly silver, it carries the silver premium… meaning it tends to be more expensive than non-silver counterparts.

Some investors collect Sterling silver pieces as part of their portfolio since Sterling Silver is still silver! If you’re interesting in buying Sterling Silver pieces, look for a stamp (called a Hallmark) that says “925” or “Sterling”. There are test kits you can get to test the metal for purity. Do your homework before diving in.

Production & Authentication

Assay

An assay is a process used to determine the content, purity, or quality of precious metals. Assaying is essential for several reasons:

1. Purity determination: Assaying helps establish the exact purity of a precious metal, expressed as a percentage or fineness (e.g., 99.9% pure gold).
2. Value assessment: By determining the purity, assaying enables the accurate valuation of precious metal items, such as jewelry or bullion.
3. Quality control: Assaying ensures that precious metal products meet the required standards and specifications, protecting consumers and maintaining market integrity.

Common assaying methods include:

1. Fire assay: A sample is melted with a flux to separate the precious metal from impurities.
2. X-ray fluorescence (XRF): A non-destructive method that uses X-rays to analyze the composition of a precious metal.
3. Inductively Coupled Plasma (ICP) analysis: A sample is dissolved in acid and analyzed using plasma technology.

Assaying is typically performed by certified assayers or reputable metal dealers to guarantee the accuracy of the results and maintain consumer trust in the precious metals market.

Investment and Finance

Bullion vs Coin vs Round

You’ll hear these terms all the time. They typically mean different things but sometimes can be referring to the same thing so it can be a little confusing without the context.

Generally speaking, however, bullion, coins, and rounds are different things.

Rounds are never legal tender. That’s the easiest way to start getting a handle on these terms. They’re usually produced by private mints and don’t have a face value. People usually collect them for their designs and/or metal content.

These include custom designs.

Coins are always legal tender and are issued by the government. They always have a face value and are usually the most popular form of investment.

These include American Eagles and Buffalos, Canadian Maple Leaf’s, and Krugerands.

Bullion usually refers to bulk bars or ingots and are solely valued for the metal content. Rounds are not typically referred to as bullion but some coins are as in “bullion coins” which are those coins used primarily for investment purposes.

Exchange-Traded Funds (ETF’s)

An Exchange-Traded Fund (ETF) is an investment vehicle that tracks the performance of a particular asset or group of assets, such as precious metals. ETFs are traded on stock exchanges, much like individual stocks, and can be bought and sold throughout the trading day.

Key points about precious metal ETFs:

1. Precious metal ETFs invest in physical bullion, such as gold, silver, platinum, or palladium, or in shares of companies involved in mining, refining, or trading these metals.
2. These ETFs provide investors with exposure to precious metal prices without the need to physically store or insure the metals themselves.
3. Precious metal ETFs often have lower transaction costs compared to buying and selling physical bullion due to their liquidity and the absence of storage and insurance fees.

Importance of precious metal ETFs:

1. Diversification: Precious metal ETFs allow investors to easily diversify their portfolios by adding exposure to precious metals, which can act as a hedge against inflation, currency fluctuations, and economic uncertainty.
2. Accessibility: ETFs make investing in precious metals more accessible to a wider range of investors, as they can be bought and sold through standard brokerage accounts.
3. Flexibility: Investors can easily adjust their exposure to precious metals by buying or selling ETF shares as market conditions change.

Examples of popular precious metal ETFs include:

1. SPDR Gold Trust (GLD): Tracks the price of physical gold bullion.
2. iShares Silver Trust (SLV): Tracks the price of physical silver bullion.
3. Aberdeen Standard Physical Palladium Shares ETF (PALL): Tracks the price of physical palladium bullion.

Do your own research about these. Don’t just throw money into something you don’t understand.

Numismatic Coins

Numismatic coins are coins that have a collectible value beyond their face value or melt value. These coins are prized by collectors for their rarity, historical significance, design, or condition.

For a deeper dive, check out our article Invest in numismatics: To Big a Risk or Golden Opportunity?

Key points about numismatic coins:

1. Numismatic coins can be from any era, ranging from ancient to modern times.
2. They are often sought after for their unique features, such as low mintage, specific year of issue, mint marks, or error coins.
3. The condition or grade of a numismatic coin is a crucial factor in determining its value. Coins are graded on a scale from Poor (P-1) to Perfect Uncirculated (MS-70) based on factors such as wear, luster, and overall appearance.
4. Numismatic coins are not typically valued for their precious metal content, but rather for their collectible value.

Importance of numismatic coins:

1. Historical preservation: Numismatic coins serve as tangible links to the past, providing insights into the economic, political, and cultural landscapes of different eras.
2. Investment potential: Rare and high-quality numismatic coins can appreciate in value over time, making them an attractive option for collectors and investors.
3. Educational value: Studying numismatic coins can enhance one’s knowledge of history, art, and economics.

Collecting numismatic coins requires knowledge, research, and careful consideration of factors such as authenticity, condition, and market trends. Collectors often specialize in specific eras, regions, or themes to build focused and valuable collections. It’s essential to purchase numismatic coins from reputable dealers and to have them authenticated and graded by professional services to ensure their quality and value.

Sovereign Coin

A sovereign coin is a gold coin produced by a government mint and considered legal tender in its country of origin. Examples include the American Gold Eagle, Canadian Gold Maple Leaf, and British Gold Britannia. Sovereign coins often have a face value and are guaranteed for weight and purity by the issuing government.

For a deeper dive, check out our article Sovereign vs Non-Sovereign Precious Metals: What You Need to Know.

Key points about sovereign coins:

1. Sovereign coins are minted by government-owned or government-authorized mints, ensuring their authenticity and quality.
2. These coins have a face value denominated in the currency of the issuing country, although their actual value is primarily determined by their gold content and market conditions.
3. Sovereign coins are guaranteed by the issuing government for their weight, purity, and gold content, providing investors with a high level of confidence in their purchases.
4. These coins are often available in various sizes, such as 1 oz, 1/2 oz, 1/4 oz, and 1/10 oz, catering to different investment budgets and preferences.

Importance of sovereign coins:

1. Trust: Sovereign coins carry the backing and guarantee of the issuing government, instilling trust among investors and collectors.
2. Liquidity: Due to their widespread recognition and acceptance, sovereign coins are highly liquid and can be easily bought, sold, or traded in the global precious metals market.
3. Portfolio diversification: Sovereign coins offer investors a way to diversify their portfolios with tangible, government-backed assets that have historically served as a hedge against inflation and economic uncertainty.

Junk Silver

1. Junk silver refers to older circulated coins that contain a specific percentage of silver, typically 35% to 90%, but are not considered rare or collectible. Examples include pre-1965 US dimes, quarters, and half dollars. Junk silver is often bought and sold for its silver content rather than its numismatic value.

For a deeper dive, check out our article Unlocking the Treasure Trove: The Hidden Value of Junk Silver Coins.

Key points about junk silver:

1. Junk silver coins are common, circulated coins that have a lower silver content compared to fine silver bullion.
2. The silver content in junk silver coins varies depending on the country of origin, year of minting, and denomination. For example, pre-1965 US silver coins contain 90% silver, while later issues contain 40% silver.
3. Junk silver is typically sold in bulk quantities, such as by the bag or face value, rather than individually.
4. The value of junk silver is primarily determined by its silver content and the current spot price of silver.

Importance of junk silver:

1. Affordability: Junk silver offers a more affordable way for investors to acquire physical silver compared to high-purity silver bullion.
2. Divisibility: Due to the smaller denominations of junk silver coins, investors can easily divide their holdings into smaller, more manageable units for selling or trading.
3. Historical significance: Junk silver coins often have historical value and can be appealing to collectors who appreciate their connection to the past.

Scrap

Scrap precious metals are leftover or reclaimed pieces of gold, silver, platinum, or palladium from various sources, such as old jewelry, dental fillings, or industrial byproducts. Scrap metal is typically sold to refiners who melt it down and purify it for reuse in new products.

Key points about scrap precious metals:

1. Scrap precious metals can come from a wide range of sources, including broken or outdated jewelry, dental fillings, electronic components, and industrial waste.
2. The value of scrap precious metals is determined by their purity and weight, which is typically assessed through assaying techniques.
3. Refiners purchase scrap precious metals at a percentage of the current spot price, taking into account the costs associated with refining and purifying the metal.
4. The process of recycling scrap precious metals involves melting down the scrap, removing impurities, and casting the purified metal into new forms, such as bars or ingots.

Importance of scrap precious metals:

1. Recycling: Scrap precious metals play a crucial role in the recycling process, reducing the environmental impact of mining and conserving natural resources.
2. Economic value: Selling scrap precious metals can provide a source of income for individuals and businesses while also contributing to the overall supply of these metals in the market.
3. Sustainability: Recycling scrap precious metals helps to create a more sustainable and circular economy, minimizing waste and reducing the need for new mining operations.

Storage and Legal

Depository

A depository is a secure storage facility specifically designed to hold precious metals, such as gold, silver, platinum, and palladium. These facilities offer a safe and insured environment for individuals, investors, and institutions to store their precious metal assets.

We talk about vaulting and custody with our article 9 Proven Ways to Store Your Precious Metals

Key points about depositories:

1. Depositories are equipped with state-of-the-art security systems, including 24/7 surveillance, armed guards, and secure vaults.
2. They often provide insurance coverage for the stored precious metals, protecting against theft, damage, or loss.
3. Depositories can offer allocated or unallocated storage. Allocated storage means that each investor’s holdings are separately identifiable and stored, while unallocated storage involves pooling the metals together.
4. Some depositories also offer services such as buying, selling, and transporting precious metals on behalf of their clients.

Importance of depositories:

1. Security: Depositories provide a highly secure environment for storing precious metals, reducing the risk of theft or damage compared to personal storage.
2. Peace of mind: By using a depository, investors can have peace of mind knowing that their precious metal assets are protected and insured.
3. Convenience: Depositories offer a convenient solution for those who want to invest in precious metals without the need to handle or store the physical assets themselves.

Vaulting

Vaulting refers to the process of storing precious metals in a secure vault within a depository. Vaulted precious metals are typically allocated, meaning that each investor’s holdings are separately identifiable and stored, rather than being pooled together.

Key points about vaulting:

1. Vaulted precious metals are stored in a highly secure, access-controlled environment within a depository.
2. Each investor’s holdings are typically stored separately, with unique serial numbers or other identifiers to ensure clear ownership and accountability.
3. Vaulting services may offer various storage options, such as segregated or non-segregated storage, depending on the investor’s preferences and the depository’s policies.
4. Investors can often arrange for audits or inspections of their vaulted precious metals to verify their existence and condition.

Importance of vaulting:

1. Ownership: Vaulting ensures that each investor’s precious metal holdings are clearly identified and owned, reducing the risk of confusion or disputes.
2. Accountability: With vaulted storage, depositories are accountable for maintaining the integrity and security of each investor’s holdings.
3. Flexibility: Vaulting allows investors to store their precious metals in a secure location while retaining the ability to sell, transport, or take delivery of their assets as needed.

London Bullion Market Association (LBMA)

The LBMA is an international trade association representing the global over-the-counter precious metals market. It sets standards for the purity, form, and provenance of precious metals traded between its members. LBMA accreditation is widely recognized as a benchmark for quality and reliability in the bullion market.

Key points about the LBMA:

1. The LBMA is responsible for setting and maintaining the “Good Delivery List,” which specifies the requirements for gold and silver bars traded in the London market.
2. LBMA accredited refiners must meet strict criteria for the purity, weight, and markings of their bullion products.
3. The association also promotes transparency, fairness, and integrity in the precious metals market through its “Responsible Sourcing Programme,” which focuses on issues such as human rights, environmental impact, and supply chain due diligence.
4. The LBMA works closely with regulators, central banks, and other market participants to ensure the efficient and effective functioning of the global precious metals market.

Importance of the LBMA:

1. Quality assurance: LBMA accreditation provides a globally recognized standard for the quality and reliability of bullion products, helping to maintain investor confidence in the market.
2. Market stability: By setting standards and promoting best practices, the LBMA helps to ensure the stability and integrity of the global precious metals market.
3. Facilitating trade: The LBMA’s work in standardizing bullion specifications and promoting market transparency facilitates efficient trade and liquidity in the precious metals market.

Check out this article for Investopedia which goes into detail about this called Gold Fix: What it Means, How it Works, Bullion Trading

London Fix

The London Fix is a benchmark price for gold and silver, determined twice daily by a group of participating banks. The fix is used as a reference point for pricing precious metal products and derivatives worldwide. The London Platinum and Palladium Market (LPPM) provides similar benchmarks for platinum and palladium.

Key points about the London Fix:

1. The London Gold Fix is conducted twice daily (10:30 AM and 3:00 PM London time) by a group of participating banks, while the London Silver Fix is conducted once daily (12:00 PM London time).
2. During the fixing process, participating banks declare their buy and sell orders, and the price is adjusted until the market reaches equilibrium, at which point the fix is declared.
3. The London Fix provides a transparent and widely accepted benchmark for pricing precious metal transactions, including physical bullion, futures contracts, and other derivatives.
4. The LPPM conducts similar fixing processes for platinum and palladium, providing benchmark prices for these metals.

Importance of the London Fix:

1. Price discovery: The London Fix helps to establish a fair and transparent price for precious metals based on actual market supply and demand.
2. Global benchmark: The London Fix is widely used as a reference price for precious metal transactions worldwide, helping to ensure consistency and comparability across markets.
3. Risk management: Market participants can use the London Fix as a basis for valuing their precious metal holdings, managing risk, and marking-to-market their positions.
   

Check out this article for Investopedia which goes into detail about this called Gold Fix: What it Means, How it Works, Bullion Trading

Premium

The premium is the additional amount above the spot price that a dealer charges for a precious metal product. Premiums can vary based on factors such as the product type, mintage, rarity, and market demand. For example, a gold coin may have a higher premium than a gold bar due to its collectible value and lower production volume.

Key points about premiums:

1. Premiums are typically expressed as a percentage or fixed amount above the spot price of the precious metal.
2. Factors influencing premiums include the cost of fabrication, distribution, marketing, and dealer markup, as well as the product’s rarity, condition, and market demand.
3. Premiums can vary significantly between different types of precious metal products, such as coins, bars, and rounds, as well as between different dealers and market conditions.
4. Investors should consider the premium when evaluating the total cost and potential returns of their precious metal investments.

Importance of premiums:

1. Pricing transparency: Understanding premiums helps investors to assess the total cost of their precious metal purchases and compare prices between different products and dealers.
2. Investment strategy: Investors can take premiums into account when deciding which types of precious metal products to include in their portfolio, balancing factors such as liquidity, divisibility, and potential collectible value.
3. Market indicators: Changes in premiums can provide insights into market conditions, such as supply and demand dynamics, investor sentiment, and market efficiency.

When considering premiums, investors should aim to strike a balance between the product’s overall cost and its potential benefits, such as liquidity, storage efficiency, and collectible value. Comparing premiums across different dealers and products can help investors make informed decisions and optimize their precious metal investments.

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