Precious Metals

A benchmark to establish a base for pricing products.

Spot as it is applies to commodities, is a benchmark to establish a base for pricing products. In the US, precious metals are bought and sold on the commodity exchange (COMEX) as contracts. Each type of standard precious metal contract is a requisite size to execute (buy or sell) - gold is 100 oz., platinum is 50 oz., palladium is 100 oz., and silver is 5000 oz.*

The term Spot is short for Spot or Current Month Contract and means, the price is for immediate delivery of the respective commodity. Simply put, the 'right now' price for 'right now' delivery. As opposed to a Futures Contract, which means there is speculation as to what the price may be in the future for future delivery. For the purpose of the Precious Metals 101 Series, we will only be concerned with Spot prices.

COMEX precious metals markets are actively traded 8:20 am to 2:30 pm in New York Eastern Time. The price you see published in your daily newspaper is the previous day's closing price. It's alright to use this price to get an idea of where the markets are trending, but not for getting a 'right now' price. To get current active prices, one may call their broker or access numerable websites or applications.

Precious metals are a weight based commodity and all weights are Troy.

Precious metals are a weight based commodity and that weight is based on a Troy system. In the US, the standard sytem of weight is avoirdupois (i.e. postage ounce or bathroom scale pound). All precious metals are priced and measurements are converted to troy ounces.

A Troy ounce is roughly 9.7% heavier than an Avoirdupois ounce. That translates to 14.58 Troy ounces equals an Avoirdupois pound (16 ounces). Sometimes the buyer will see or hear about products that are sold as a pound of a precious metal; usually it is silver. It is important to verify if it is an avoirdupois pound (14.58 troy ounces) or a troy pound (12 troy ounces). Products are availabe in both sizes.

The more common forms of measurement for precious metals is the metric system--grams or kilos, which are then converted to troy ounce. The exception to this is jewelry, where prices can be quoted in either grams or penneyweights.

A summary of Terms used when trading precious metals. Definitions and notes explaining their different applications.

In many cases certain verbiage associated with the sale of precious metals and numismatics is used interchangeably to imply the value or suitability of a product. In this article we are addressing the strict definition of these terms. For more reading on objectives, time lines, and products see our article 'Investment Guidance'.

• Collect - to gather or accumulate a group of related objects, especially as a hobby.
• Hobby - an activity or interest pursued for pleasure or relaxation and not as a main occupation.
• Numismatics - of, relating to, or consisting of coins, medals, paper money, etc.

Financial Terms

• Capital Appreciation - the difference between the purchase price (cost) and fair market value (if higher than cost) when liquidated.
• Hedge - a means of protecting oneself from financial loss.
• Inflation - is a sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys few goods and services.
• Invest - to commit money for financial return in the form of income or to appreciate in the future.

How the price is established and some of the pitfalls to watch out for.

The term 'scrap' means the item will be refined, not resold as a second hand piece. There are 4 main components to figuring the price to be paid for your scrap.

• Karat / Fineness
• Spot Price
• Weight
• Expenses and dealer profit margin

Karat

The word karat generally applies to gold jewelry and is the ration of pure gold to metal alloys. All buyers use the following formula to determine how much pure metal is in your item.

• Karat / 24 = Purity
• Purity X Gross Weight = Pure metal content (PTO)

Simply put, the above formula would tell you how much pure gold remains after the refining process separates out the alloys. My math teacher always told me I'd need algebra later in life. To make it easier for you, I've done the math for determing purity:

• 9 K = 37% - seen in vintage European jewelry
• 10 K = 39% - typical of American jewelry produced before 1996*
• 10 K = 41% - typical of American jewelry produced after 1996
• 14 K = 56% - typical of American jewelry produced before 1996*
• 14 K = 58% - typical of jewelry produced after 1996
• 18 K = 73% - typical of American jewelry produced before 1996*
• 18 K = 75% - typical of jewelry produced after 1996, standard European & Asian jewelry
• 21 K = 90% - seen in many gold coins world wide
• 22 K = 91% - seen in standard Asian jewelry
• 23/24K = 96/99% - specialized Asian jewelry

Generally, platinum and silver jewelry are not marked as karat, but by it's purity as a decimal. In the US silver is marked by most manufactorers, 'Sterling', 92.5% pure silver. Precious metal jewelry and other items from other countries can be tricky. Some countries may use a decimal to represent fineness or a combination of pictograghs, numbers or letters to mark purity and manufactor.

* US Bureau of Weights & Standards esablished in the early part of the twentieth century, jewelry manufactorers were allowed a half karat tolerance on karat markings. As technology improved, mixing and alloying became more accurate, the government revised tolerance limits to zero on karat in 1996. As such, each karat mark must be full karat or plumb.

Spot Price

It is a benchmark to establish a base for pricing products. The term is derived from the COMEX spot month contract. Which means it is the current price of an ounce of precious metal for immediate delivery. As in, right here, right now! More reading is available in our Precious Metals 101 Series - Spot.

The COMEX precious metals markets are actively traded 8:20 am to 2:30 pm Eastern Time. The price you see in your daily newspaper is the previous day's closing price. To get current active prices, one may call their broker or access numerable websites or applications.

Weight

Precious metals are based in troy weight. What is a troy ounce? It is roughly 9.7% heavier than a postage ounce; which translates to 14.58 troy ounces equals a US standard 16 ounce pound. Depending on what part of the country you are in or how long your buyer has been around, scrap items are weighed in either grams (31.1 grams to the troy ounce), pennyweights (20 dwt to the troy ounce), or Troy ounces ( t.o.).

Thus, your item(s) are weighed; then multiplied by purity to determine the amount of available pure metal; and then, multiplied by spot price to get what we call in the industry 'Full Melt'.

• Gross Weight X Karat X Spot = Full Melt

Expenses and Dealer Profit

Let me say it now, you are not going to get full melt for your scrap. There are many direct costs related to handling scrap metal. First, there are the refining and shipping costs. Also, many principalities require the merchant to hold scrap metal from 5 - 30 days before it can be refined. So the merchant is exposed to market risk. Lastly, the merchant adds their profit margin.

A fair dealer will generally set their profit margin based on the product volume and metal type. One tiny charm is not going to get the same rate as several ounces of rings and chains or a complete set of flatware. Generally, the discount to full melt is 30%-40% for small lots and up to 15% for large lots. So, if spot gold is $1500 per troy oz. and you have 14 karat scrap jewelry, full melt is $870 per troy oz., you can expect to get a net price of $435 p/oz. for a small lot up to $740 per troy oz for a large lot. You can further divide the net price by penneyweight (20) or gram (31.1) depending on how the buyer calculates your items. Don't forget the dealer has to cover their expenses and make a fair profit.

Due Diligence, Pitfalls and Tricks

Before you sell your items check out the dealer. A good place to start is your Better Business Bureau office or the local office of the dealer's trade organization (coin, jewelry, or pawn association).

• Check the scale read-out when your item is actually weighed
• Ask if the weight is in pennyweights (Dwt) or grams (Gms) or ounces (Oz)
• Ask how much the per unit price is (Dwt, Gms, Oz; any one is acceptable). A reputable buyer is happy to explain how they arrived at the price.
• Double check the math, even a reputable dealer can make an unintentional mistake. It happens.

Ask if there is a different price for cash payment vs. check payment. It is not unusual to see a price differential. Some quotes can be up to 10% different, if it is a large lot. There are pros and cons to both forms of payments. If there is no difference in price and the dealer wants to pay by check for larger purchases, make sure the check is drawn on a local bank so that you have the option of cashing the check or converting it to a cashiers check.

Finally, the bottom line is, who pays the most for your TOTAL lot. There should be very little variation in the overall price. Shop around and don't be afraid to say no. And now we come full circle... Do Your Due Diligence! Good Luck!

A Precious Metals IRA is a Self-directed Individual Retirement Account which allows for certain non-traditional hard assets, such as Precious Metals.

The IRS has parameters in place to maintain the tax benefits and integrity of your Precious Metals IRA. Your bank or brokerage account IRAs are governed by the same rules. It's just not as obvious to the individual, since they deal in paper or electronic certificates.

1. A Third Party Administrator (TPA) must oversee the accounting and any subsequent reporting functions, as well as money and product transfers into and out of your account.
2. Your metal must be stored off-site at a secure registered depository.

What are the benefits?

• It is treated the same as any bank or brokerage IRA account for tax purposes
• It can be a Traditional IRA or Roth IRA
• Precious Metals are a traditional offset to declining values in currency, 'a hedge against inflation'

What are the risks?

• Precious Metals are considered unregistered securities. As such, there is less oversight than registered securities such as stocks, bonds, etc.- Choose your dealer carefully.
• Product Pricing and Handling Fees
• Market volatility during economic uncertainty vs. a flat market during economic stability

How It Works

• Your broker or dealer will coordinate the initial account set up and funding of your IRA with a Third Party Administrator, as required by the IRS.
• You purchase the products for your account from the broker/dealer
• The broker/dealer coordinates the delivery of your products to the TPA's registered depository
• The TPA sends you statements at regular intervals
• Any future transactions to buy or sell are handled the same way. Note: If you request delivery in part or all of your account holdings, the IRS will treat this as a distribution at the market value on the day the transaction is executed

Choose

• Traditional IRA
• Roth IRA

Fund Your Account

• Contribution - Send payment from your bank or brokerage account to the new Precious Metals IRA account.
• Rollover - Employer sponsored 401k, 403b, pension or profit-sharing plans do not allow rollovers while you are employed with that company. Once you are no longer with the company that sponsors the retirement plan, you are free to roll it over, in part or in full, into an IRA of your choosing.
• Transfer - In full or in part, an existing Traditional IRA or Roth IRA. Stocks and Bonds cannot be transferred, they must be liquidated prior to transfer.

Choose Your Product

• Bullion Coins and Bars - Minimum Purity
  • Gold - .995
  • Silver - .999
  • Platinum - .9995
  • Palladium - .9995
  • American Eagles (1986-Present)
• Certain Semi-Numismatic Items
  • Proof American Eagles (1986-Present)
  • Proof Silver World Bullion Coins - .999
  • Proof Platinum World Bullion Coins - .9995
  • Proof Palladium World Bullion Coins - .9995

The content on this page is for informational purposes only. While The Roamin Roman, Inc. can facilitate the Self-Directed Precious Metals IRA on your behalf, this is not a solicitation or guarantee of whether it is appropriate for you. Check with your financial professional to determine if Precious Metals is an appropriate asset for your risk tolerance and goals. For more information read the following IRS Publications 590-A Contributions to Individual Retirement Arrangements and 590-B Distributions from Individual Retirement Arrangements at IRS.GOV.