The Price Of Gold
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The Price of Gold
Understanding Gold's Purity and Pricing
Gold, like other precious metals, is measured in troy weight and grams. When mixed with other metals, its purity is indicated using the term "carat" (or "karat" in the US and Canada), with 24 carats representing pure gold. Lower carat numbers indicate less gold content. Alternatively, gold purity is expressed as a decimal, known as millesimal fineness, such as 0.995.
Carat and Gold Purity
The carat system measures the purity of gold and platinum alloys, with one carat equaling one twenty-fourth of the metal's purity by weight. This means 24-carat gold is 99.99% pure, while 12-carat gold is 50% pure. Although the carat system is widely used, it is increasingly being complemented or replaced by millesimal fineness, which denotes the pure metal's proportion by parts per thousand in the alloy.
Gold is commonly available in several carat levels, such as:
- 24 carat (999 fineness)
- 22 carat (916 fineness)
- 20 carat (833 fineness)
- 18 carat (750 fineness)
- 16 carat (625 fineness)
- 14 carat (585 fineness)
- 10 carat (417 fineness)
- 9 carat (375 fineness)
Market Pricing of Gold
Gold prices are established in the open market, with the London Gold Fixing setting a benchmark twice daily since 1919.
Historical Context of Gold Pricing
Gold historically backed currency under the gold standard system. For many years, the US government set the dollar value so that one troy ounce of gold equaled $20.67 ($664.56/kg). In 1934, this was adjusted to $35.00 per troy ounce ($1125.27/kg). By 1961, maintaining this price became challenging, leading to an agreement among US and European banks to stabilize the market.
However, on March 17, 1968, market conditions led to the collapse of this system, resulting in a two-tiered pricing approach: the fixed rate of $35.00 per troy ounce was used for international settlements, while market prices were allowed to fluctuate freely. This dual system was abandoned in 1975, and gold prices were left to seek their own balance in the open market. Despite changes, central banks continue to hold gold reserves as a store of value, even as levels decline. The largest gold depository is at the U.S. Federal Reserve Bank in New York.
Since 1968, gold prices have varied significantly, peaking at $850/oz ($27,300/kg) on January 21, 1980, and dropping to $252.90/oz ($8,131/kg) on June 21, 1999. As of April 26, 2006, the London gold fixing was $635.50/oz.
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