Written by Bron Suchecki, ABC Bullion Senior Precious Metals Analyst and Gold Industry Group Company Secretary.
Gold pour at The Perth Mint
The gold industry is very particular when it comes to measuring gold, which is not surprising considering how valuable it is relative to its size.
While many countries moved to the metric system, the precious metals industry globally continued to use the historic troy ounce as its basic unit of measure. If you think it is an unfair advantage for countries that didn’t change, like the USA, you would be wrong as a troy ounce is not the same as an ounce – is it actually heavier. It is its own unique measurement unit.
A troy ounce equals 31.1034768 grams, to be exact, which means 1 kilogram equals 32.1507 troy ounces. One concession to the metric system is the use of tonnes when referring to large quantities, as it is a lot easier to say 1,000 tonnes than 32,150,746 troy ounces.
To help confuse those new to the gold business, the industry often uses “ounce” and the abbreviation “oz” rather than “troy ounce” and “ozt”, as they assume everyone knows they mean “troy”.
Precious metal weights are usually recorded to three decimal places of accuracy, or to one thousandths of an ounce, which equals 3/10th of a gram. That might seem excessive until you consider that 3/10th of a gram equals about $1.70.
Along with precise weighing, the gold industry is obsessed about purity. Purity refers to the amount (by weight) of pure gold an item has. Most people would be familiar with the use of Carats when describing jewellery, which is purity expressed in units of 24, such that 100% equals 24 carat and 75% equals 18 carat.
The gold industry uses either percentages or fineness (fine being another word for pure). This means an item has two weights:
Gross weight – what you see when you put it on a scale
Fine weight – the amount of pure gold in an item, or its gross weight multiplied by its purity
So a 10 ounce (troy, that is) gold bar has a different fine weight if its purity is 99.99% or 99.50%. The difference between 9.999oz and 9.950oz might not seem like a lot, but that 0.049oz is worth around $80. There are international standards on determining the purity of a product. For example, Australian Standard 3515.4-2007 says that for something to be called 99.99% the minimum purity has to be 99.9875%.
In the wholesale investment precious metal markets, physical gold is traded in bars of approximately 400oz with a purity of 99.5% or more and these are often referred to generically as “nine nine five” bars. The reason wholesale gold is traded at 99.5% is because it is much cheaper to refine to this purity than 99.99% (or “four nines”, if you want to sound like an industry insider), which requires additional processing.
With all this talk of precision measurements, you may be surprised to know that if you weighed a coin or bar with a very precise scale you would find they all have slightly different weights, although all will be above the specification weight as no accredited manufacturer would ever sell underweight bars or coins.
All manufacturing processes result in small variations – it is not possible (or often cost effective) to produce exact weights as per the product specifications. For example, a 10oz gold bar, if weighed and assayed accurately may show an actual gross weight of 10.0003oz and a purity of 99.9876%, giving an actual fine weight of 9.9990599628oz.
Of course, if every bar was recorded this accurately, it would make trading very complicated. So bars and coins are specified with standard (minimum) weights and purities, with a varying amount of “excess” gold in each coin or bar. This small excess is actually called “giveaway” by manufacturers and is tracked as it represents a cost - they are literally giving away free gold!
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