When considering
investing in gold or any other commodity, each market has specific terms that
are used to describe the way each market operates. In the case of gold, there
are several terms investors will encounter. They include:
Spot Price. The spot price for gold,
or other precious metals like silver, describes the value at a specific moment
in time, and the price is likely to change rapidly.
Premium. While the spot price of
gold may, for example, be $1000 per ounce, not all gold is available for that
price. A premium may be charged for some gold coins and other forms of gold if
the market demands.
Mark Up. The mark up represents
the cost of the sale and a profit for the dealer. Each level of marketing can
result in additional markups.
Troy Ounce. Gold and other precious
metals use the troy ounce as a unit of weight. Each troy ounce equals 31.1035
grams.
Bullion. Gold bullion is sold in
the form of bars or ingots and is expected to be 99.5 percent pure.
Mint State. Since gold and silver
coins are routinely sold, their value to collectors is enhanced when they are in
mint state, meaning their condition is essentially the same as the day they
were created.
Junk. Junk, or scrap, gold is
generally held to be any gold that has little value in its present state and is
most suitable for recycling.
Weights. Anyone interested in
buying or selling gold must be familiar with the ways gold is weighed and
graded. That means understanding both how actual weight is measured and how
carat weight affects value.
Bid/Ask or Buy/ Sell
Spread.
The terms reflect the differences between quoted prices and what a buyer will
actually offer. The difference can be a good indicator or a market’s current
condition.
Dealer vs. Trustee vs.
Custodian. Dealers market a commodity. A trustee is in a fiduciary position
to buy or sell a commodity on another’s behalf. A custodian simply holds a
commodity in a safe setting.
Understanding the terms
and how they affect buying, holding, and selling gold is important, as each
plays a role in determining the profitability of an investment in gold or any
other precious metal.
