A BEGINNER'S GLOSSARY
What is bullion?
Technically, bullion is defined as gold and silver in the form of bars or ingots with purity exceeding 99.5%. However, coins with equal or greater purity, or even common sovereign coins that are only 22 karats (91.67%) such as the gold United States Mint Eagle or South African Mint Krugerrand, are generally referred to as “bullion” even though they do not pass the technical definition because they are purchased primarily for their metallic content and not for collectible purposes.
Since the United States Mint Eagle and South African Mint Krugerrand are only 22 karats (91.67% pure), why do they trade at roughly the same price as pure gold products?
Although it is true that the gold Eagle and Krugerrand are only 91.67% pure, they nevertheless still contain 1 troy ounce of gold. Their lesser purity is the result of adding metallic alloys to harden the coins, and so the gross weight of these coins is actually 1.09 troy ounces, with a net gold weight of 1 troy ounce.
What does it mean when a coin is labeled “Brilliant Uncirculated (BU)?”
The term “Brilliant Uncirculated,” or “BU,” refers to coins that have not been in circulation or handled commonly like commercial coins. They show no significant wear. When privately held bullion coins have abnormal wear, they may be designated as “Almost Uncirculated (AU)” or “common.”
A common mistake among buyers is to assume that “BU” coins possess the same qualities as “graded” coins. This is not the case. Imperfections in the minting process or slight nicks and scratches do not disqualify a coin from being designated “BU,” particularly when these coins are stacked one upon another in tubes while in transit. Customers who are seeking coins in perfect condition buy MS-70 graded coins, and they pay a higher premium for them.
What is the “spot” price?
The spot price of gold is the price of 1 ounce of gold as contained within a 400-ounce gold bank bar traded on the commodities exchange at current market prices. For silver, it is the price of 1 ounce of silver as contained within a 1,000-ounce silver bank bar traded on the commodities exchange at current market prices. These prices for “immediate delivery” are distinct from futures prices, which indicate trade value for delivery at a future date.
NOTE: We publish live spot prices on our website. These prices originate from CME GLOBEX. Since precious metals are traded throughout the world on many exchanges, and websites publish these prices at irregular intervals, it is common that slight variations in pricing exist between websites. For example, a website publishing prices from a certain exchange every two minutes will produce slightly different prices than another website publishing every 20 seconds from another exchange.
Additionally, most markets publish a “bid” and “ask” price for these metals, with a slight spread between them. In most cases, dealers buy at the bid (the lower number) and sell at the ask (the higher number). Popular metals charts, like Kitco.com, publish the “bid” price.
At Texas Precious Metals, we blend the “bid” and the “ask” together, which is more favorable to both buyers and sellers (lower price when buying, higher price when selling).
What is the “premium”?
The premium is the markup for a precious metals coin or bar above the spot price. Several factors contribute to a coin’s premium, the most significant of which is the minting cost. Buyers cannot afford (or do not want to purchase) 400-ounce gold bank bars; they want smaller denominations, and those smaller denominations must be minted. In the case of sovereign mints, another contributor is taxes because some governments levy a duty on every coin sold to consumers. Shipping costs from the mints to dealers also contribute to the premium. If the premium for a gold coin is $50, the dealer may gross $10-15 per coin, depending on volume.
For silver and platinum, the same principles apply. In general, Texas Precious Metals will also pay a premium to sellers when individuals are selling back to us, especially for products we carry on our website. Our “buyback” premiums are indicated on individual product pages.
What is the “melt” price?
The melt price is simply the spot price multiplied by the precious metal weight. For a 1-ounce gold coin, the spot price and the melt price are the same. If the gold spot price is $1,500, and the gold content in the coin is .9675, then the melt price is $1,500 x .9675 = $1,451.25.
What is a “troy” ounce?
Most people recall that an ounce is 1/16 of a pound, and when purchasing a half-pound of roast beef at the deli, the butcher will hand us an 8-ounce package. This standard unit of commerce is technically referred to as an “avoirdupois” ounce, and it is used commonly for weighing everything except precious metals and gunpowder.
Precious metals are measured in “troy” ounces, which is a unit of measure that dates to Roman times. A troy ounce is heavier than the avoirdupois ounce, and the conversion is as follows:
1 troy ounce = 1.09714286 avoirdupois ounces
So, do not be surprised if your 16 “1-ounce” 99.99 percent pure gold Canadian Maple Leaf coins weigh more than a pound on your kitchen scale. You have not won the lottery, unfortunately. You are simply using the wrong scale.
What is “purity?”
A coin’s purity is calculated as the precious metal weight divided by the total weight. In the case of a .9999 fine gold coin, the gold content is at least 99.99% of the total weight. A gold American Eagle coin contains 1 troy ounce of gold, but the total coin weight is 1.09 troy ounces (the coin contains other alloys). Therefore, the purity of the coin is 1/1.09 = .917 or 91.7% or 22 karat.
What is a “graded” coin?
A graded coin is any coin that has been evaluated by a third-party grading service in order to classify the coin’s condition using a generally accepted scale ranging from 1 to 70. The two most popular grading services are NGC and PCGS, and they certify both modern and vintage coins. Graded coins are subsequently mounted inside tamper-proof hard plastic cases, known as “slabs,” with a unique serial number archived in the company’s database.
What does it mean to “lock in” a price?
Unlike purchasing an item on Amazon, the prices for our products fluctuate with the commodities market every 20 seconds. They are constantly changing. A buyer can “lock in” a price either online or by phone the moment he or she orders. This is known as a “market order” and is fixed permanently the moment the order is placed, whether the price moves higher or lower afterwards.
Amidst these constant price fluctuations, we protect the company against gains or losses through a process known as “hedging.” We generate profit through product premiums, not by speculating in the commodities markets. As a result, we take a short position on our trading platform — a hedge — against any physical inventory in our possession. Our physical inventory acts as long position. These positions offset each other, thereby negating any price exposure.
When a buyer purchases from our company, we close out our short position and transfer the long position to the buyer. In this way, purchasing precious metals is very similar to buying a stock. Once you execute the trade, there is no reversing it. Our trading staff adheres to the following principle: For every action, there is an equal and opposite reaction. For every sale, we close out the offsetting position. Therefore, once you “lock in” your order, you own the metal at that price.