There are different ways of measuring how “pure” refined gold is. The most used and most common method is through the karat system. A “karat” is a measurement used to judge how close to “pure” gold a given bit of gold bullion is.
If the gold is 24 “karat”, then it’s the most pure gold. If it’s 12 “karat”, then it’s half pure gold and is worth half as much. This is essentially how the entire ranking and measuring works — nothing much more than this.
Still, let’s break it down further to understand the processes that are at play in order to understand how different purities of gold have different prices — this will allow us to understand how much certain gold objects, like scrap gold, are worth.
How Gold “Karating” Works
Karats are units of measurement used to measure how pure gold bullion is. The higher the karat number, the more pure the bullion is. The highest possible karats gold can have is 24, the lowest karats gold can have is usually considered ~1.
This works essentially exactly how it sounds. For example, 12k of gold is half as valuable as 24k gold, and so on.
How Karating Affects Prices
The price of gold depends on an extreme level on how pure the gold is. If gold is 24k gold, it’s essentially worth whatever the spot prices are for that weight of gold. If gold is 12k gold, it’s worth about half of that, ounce per ounce.
For example, if you have 1 ounce of 24k gold, and the price of gold is $1,000, then you have $1,000 worth of gold.
If, however, you have 1 ounce of 12k gold, and the price of gold is $1,000, then you have only $500 worth of gold.
Why This Matters to Investors
If you find scrap 10 ounces of gold bullion that is 12k gold, you obviously don’t want to pay anything close to the same level as you’d pay if it was 24k gold — you’d pay half price, at best. Ideally, you’d get it at a steep discount because you’ll need to flip it at probably below spot prices, and will need to melt it down — all requiring money to be spent.
The flipside is also true. If you’re selling your gold, knowing how much it’s actually worth is obviously pretty important if you’re trying to make any money at all. Ignorance might be bliss, but it’s usually bankrupt as well.
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