How karat and weight work in gold pricing

Karat measures the purity of a piece of gold. Weight is measured in grams. A price per gram is multiplied by the weight to get the metal value. A jeweller’s total differs from the metal value because of making charges, wastage and buy-back deductions. This page explains each in words, using no numbers apart from the karat figures 24, 22 and 18.

What 24, 22 and 18 karat mean

Karat is a measure of purity, expressed as a fraction of twenty-four. 24 karat gold is pure gold, or at least 99.9 per cent. 22 karat gold is twenty-two parts gold and two parts other metals, or 91.7 per cent pure. 18 karat gold is eighteen parts gold and six parts other metals, or 75 per cent pure.

The other metals are added to make the gold harder and more suitable for jewellery. Pure gold is soft and scratches easily. A lower karat piece is more durable but contains less gold.

A price per gram is turned into the price of a piece by multiplying the per-gram rate by the weight in grams. For example, if a dealer quotes a per-gram rate for 22 karat gold, the metal value of a piece is that rate times the weight.

The per-gram rate for a lower karat is the 24 karat gram price multiplied by the karat over twenty-four. For 18 karat, that is eighteen over twenty-four, or seventy-five per cent of the 24 karat price. That is arithmetic, not an independent market price.

A jeweller’s total differs from the metal value because of making charges, wastage and buy-back deductions. The making charge is the labour cost of turning metal into a piece. It is negotiable and varies by design.

Wastage is the metal lost during the making process. A jeweller may add a percentage to the metal value to cover wastage. Buy-back deduction is the margin a dealer keeps when buying back a piece from a customer.

The making charge is added to the metal value to get the retail price of a piece. It can be a fixed amount per gram or a percentage of the metal value. It is higher for intricate designs and lower for simple ones.

The making charge is not part of the metal value. A buyer who sells the piece later will not recover the making charge. The buy-back price is based on the metal value minus a deduction.

The buy-back deduction is the margin a dealer keeps when buying back a piece. It covers the dealer’s costs and profit. The deduction is usually a percentage of the metal value.

A buyer should ask the dealer to state the buy-back deduction in writing before buying. The deduction affects the resale value of the piece. A piece with a high making charge and a high buy-back deduction is a poor store of value.

A buyer should weigh the piece and test the karat before buying. The weight should be measured on a calibrated scale, and the karat should be tested in front of the buyer. The per-gram rate should be stated clearly.

The buyer should ask for the making charge and the buy-back deduction in writing. That written quote shows the total cost and the likely resale value. It allows the buyer to compare dealers and make an informed decision.