Many of us have come across the term 24 karat gold but haven’t paid much attention to what it actually means. A karat is term used for measurement of purity of gold. Gold available in the market is of variable quality therefore there is a need for testing the gold purity.
A karat of gold is defined as:
X= 24 x (Mg/Mm)
Mg is mass of pure gold in material
Mm is total mass of material
X is the karat rating mostly denoted by K or Kt.
In other words 18 karat gold means 18 parts of pure gold and 6 parts of other metal (mostly alloys of copper) therefore 24 karat gold is the purest form of gold containing approximately 99.99% gold. But this gold is very brittle and therefore it is unsuitable for jewel making. The jewel making process utilities 22 karat gold that contains 22 parts pure gold and the remaining 2 parts are other metals. But this 22 karat gold has appreciable purity of 91.67%.
Other ways of measuring gold are in terms of troy ounces. 1 troy ounce = 31.1035 grams but its purity can’t be determined in this way. The purity can be measured in parts gold or %. But the preferred way is karat. There is a fallacy among people about carat and karat. Karat is used for gold measurement while carat is for measurement of purity of gemstones. Karat is represented as K or Kt while carat is represented as ‘ct’.
Gold as an Investment
One can hardly find any other thing during entire human history which is as precious as gold. As such, the price of gold has been increasing ever since. This means gold has been considered as the most valuable equity.
Investments in gold can be made in the form of jewelry, coins and bullion bars. Jewelry is not considered as a suitable investment option, by capitalists as the jewelry gold is not 100% pure and its value deteriorates, plus we have to pay the jeweler making and wastage charges for the jewelry. The extra charges aren’t considered while buying jeweler therefore jeweler gold yields less profit. Most of the serious investors, invest in bullion bars or gold coins.
The value of gold coins depends on two major factors its purity and its age. When referring to purity it is understood that we are talking about karats and it’s conclusive that higher purity means better price. Whereas, age of the gold coin is inversely proportional to its value, older the coin the more the value. The age of a coin is determined by a scale set by American Numismatic Association.
Large gold bars weigh approximately 400 troy ounces or 12.4 kg and can be bought from central reserves but it has been observed that this physical gold is very difficult to liquidate. Liquidating means selling it once you have a physical possession of the bar and in order to liquidate, you need to pay a hefty amount of taxes that reduce the profit to a large extent.
For the individual investor, smaller bars are a more useful investment. 24 carat gold can still be kept in this form, they are more easily disposed of and depending on the price and profit, if any, taxes can be kept much more manageable. This of course helps ensure maximum returns.