Due to gold's rarity, people have had to come up with a standard of measurement that can determine how much gold is actually in a bar of gold. This article looks at the term 'carat' and why it's used in precious metals.
What is a carat?
The term 'carat' is a unit of measurement for gold's fineness or purity. Gold is very soft in its purest form, so it has to be mixed with other metals to make it less malleable.
Measuring gold purity
A single gold carat is 1/24 part (or roughly 4.1667%) of the whole unit. A lot of gold on the market today is considered an alloy, much like a UK Gold Sovereign, which is 22-carat gold and made of 91.76% purity and 8.33% copper. 24-carat gold, much like a UK Gold Britannia, is considered pure gold. 12-carat is 50% gold mixed 50% of another metal, and so on.
Gold carat (also spelled karat) should not be confused with another use of carat - a unit of measuring mass. Both definitions come from the Italian word 'caratus' which originated from the Arabic term 'Qīrāṭ' meaning "the weight of four grains" which was a unit of measurement used by ancient traders before it was adopted by Western civilisations.
Nowadays, normal goods such as sugar, are measured using avoirdupois ounces (28.3495 grams). The weight of gold is measured in troy ounces (31.1035 grams) and has been used for this exclusively since the 16th century.
Measuring gold fineness
A way of measuring the fineness of gold is looking at its millesimal (consisting of thousandth parts) fineness. The percentage of gold fineness can range from 0.375 (9-carat) to 0.999 (24-carat). You may have noticed that a lot of bullion has the fineness incorporated into its design, like the 1oz Gold Queen's Beasts Unicorn coin, which has 999.9 written around the edge. While the carat is still very much in use today, fineness standards differ depending on the country of origin. Bullion that is 99.95% pure and above are considered as pure gold/fine gold or 24-carat gold.
Other gold, such as the US Gold Eagles, UK Gold Sovereigns and South African Gold Krugerrands have 917 purity and are classified as 22-carat. In India, 916 purity gold is the standard and is at least 22-carat (or 91.6% gold). The purest gold ever produced is 999.999 (or six nines fine), which was refined in by The Perth Mint in 1957 (Bloomberg, 2019).
London is considered the centre of the world bullion market. FXCM's gold trading guide indicates that most gold markets around the world use the carat to evaluate physical gold, benchmarking the price of gold set by them. It has been using the carat since the late 16th century, when a partnership between Moses Mocatta and the East India Company was formed.
As gold remains as one of the most consistent commodities in the market, we need something like carat to keep us all within the same conversation. Testifying to the historical and practical value of this particular unit of measurement, much like gold, we expect the carat to last forever.