When selling gold to gold buyers, there are some common terms that you will keep hearing over and over again – the spot price and the melt value. So, what is the difference and why should you care?
What is Gold Spot Price?
The spot price for gold is the price at which gold may be exchanged now. This is in contrast the price of gold for delivery at a future date. Simply put, if you are selling your gold, the price you will be quoted is the present price of gold. This is an important distinction because gold prices fluctuate all the time. Gold is traded all over the world across different exchanges like the London Exchange, Hong Kong, New York, Zurich, etc however the Chicago Mercantile Exchange (COMEX) which is made up of different exchanges is responsible for calculating and setting the spot price.
The Spot price is the most common standard for gauging what the price of a troy ounce of gold is on a particular date. This price is driven by factors like currency values, geopolitical events, speculators and others. It is essentially the universal price used by gold dealers to work out the exact price for gold bullion bars, coins. Ingots and nuggets. The price changes almost every second during trading hours.
The price of gold bullion is usually a mixture of the spot price, cost of production and the mark-up. So, bullion is sold at a price that is a little higher than the spot price. For instance, gold bullion coins are generally sold at 4-6% higher than the spot price.
The Melt value of gold
The melt value of gold is determined by the amount of gold contained in a particular gold item. To calculate this value, it is important to understand how the purity of gold is measured and priced.
Quality or purity of gold is expressed in karats which is a scale that goes from 1-24 and expressed in karats. This is usually stamped on the gold item itself. 14 karats is regarded as the purest you can get gold to be which means 12k will be 50% pure gold and 50% metal alloys, 14k = 58.3% pure gold, 18k= 75% and so on. When you know the purity of your gold, then you need to weigh it. The price of gold is quoted in troy ounces, which equal 31.1 grams. The spot price of gold is expressed in troy ounces, so if it stands at $1,300/ troy ounce then the price is actually $41.8/gram.
With purity and weight information you can calculate how much your gold is worth:
To illustrate: let’s say you have a 14k (purity is 0.583) gold item weighing 22g and the current price is $41.8/gram your gold item will have a melt value of 22g x 0.583 x $41.8 = $536.13
So bottom line there are three important things you need to calculate the melt value of gold: Weight, Purity and the spot price.
Whilst it is easy to get the weight and to look up the spot price, purity is something that might require authentication. Purity stand usually indicate millesimal fineness parts-per-thousand of the primary metal in relation to the metal alloys). Basically, what this means is that a gold item with a “995” stamp means that the item is made up of 995 parts that are pure gold and only 5 parts being to other metals.
So there are 999 parts of gold in a 24k gold item, 916 parts in 22karats, 833 parts of gold in 10k and so forth.
Why can’t gold buyers offer spot prices to sellers?
Keep in mind that the spot price of gold is the price for an ounce of the purest gold, .999 deliverable almost instantly. This means that the gold buyer would not have factored mark ups from minting, manufacturing and profit or refining fees. To make a profit and gold buyers will buy the gold below spot price such as 85 – 95% and then resell the gold at a higher price to a refiner but also under the spot price.