Click Fraud
  • FAQ
  • Cart
ABC Bullion

I’m new to precious metals – where do I start?

06 October 2021

What’s heavier?
A troy ounce or an imperial ounce?​

Tuesday 5 October 2021

To manage your email preferences, click here.

  • Learning the lingo

  • Why are there two prices?

  • What happens to the gap between the bid and the ask?

  • Your ‘cut and keep’ guide to precious metal weights

Shae Russell

Shae Russell,
Group Communications Manager

Dear Investor,

Precious metal investing for the first time can be daunting. There’s so much to learn…

…there’s why you should consider investing in precious metals…

…then there’s what to buy

…but often, what deters people from investing in precious metals is the jargon. Not speaking the ‘language’ experts speak can stump people. However, behind every nonsense phrase is a simple explanation.

Today, let’s explore some commonly used words in the market.

Why are there two prices?

One of the first things that confuses people when they begin their investing journey, is seeing two prices for the same thing.

Whether it’s shares, or foreign exchange or even precious metals, there are almost always two prices for an asset. Let’s use the Australian dollar/US dollar cross rate as an example (right).

As shown in the red circle, you can see two prices that differ by 0.0008 of a cent.

There is a reason for this. What you are seeing is the buying price (the Bid) compared to the selling price (the Ask).

The bid price is generally an average of the current buying price. Meaning, this is what people are prepared to pay right now. Whereas the ask price is an average of what people are prepared to sell at right now. In other words, the bid is the most a buyer is willing to pay for an asset, whereas the ask is the minimum someone is willing to sell an asset for. The bid price is almost always smaller than the ask price.

Australian dollar/US dollar cross rate

Source: Yahoo Finance

(Click to enlarge)

But, what about that 0.0008 of a cent in the middle, what happens to that?

What happens to the gap between the bid and the ask?

Ok, now we get to the middle bit. The obscure number between the buying and selling price.

The price gap between the bid and ask you see, is formally known as the ‘bid-ask spread’, though most people just call it the ‘spread’.

The spread on any asset, isn’t fixed. Rather it moves with the market to reflect the volatility and liquidity of a market. So, in the above example, a price difference of 0.0008 cents would be considered a ‘extremely tight’ spread.

The tighter the spread, the more liquid the market. Looked at another way, the difference between ‘the bid and the ask’ signals how many buyers and sellers are participating in the market.

The spread varies from sector to sector too. For example, the foreign exchange market is the deepest and most liquid in the world. Gold, similarly, has tight spreads, with a long term spread average of 13 cents. Silver’s spread on the  other hand, are a little bigger, averaging around $1.

Your ‘cut and keep’ guide to precious metal weights

See, when it comes to buying bullion, you’re often quoted prices in ounces (or maybe even grams and kilos). Buying in ounces can be confusing enough in Australia, especially as we use the metric system.

Compounding the confusion for many, is the fact that bullion isn’t even weighed in imperial ounces (oz), rather it’s ‘troy ounces’ (toz). An imperial ounce is 28.35 grams, whereas a troy ounce is 31.1 grams! Making a troy ounce heavier by almost 10%, or 2.75 grams.

To make buying and selling of precious metals easier, most bullion dealers assume people know the difference between troy and imperial ounces. Therefore they often only show ‘prices per ounce’, even though the bullion is weighed in troy ounces.

How come we didn’t move precious metal weights to the metric system? In most places outside the US, it’s common to discuss bullion purchases in grams. However, as the spot price is based on a troy ounce of gold based in US dollar, we’ve adapted to both.

This history behind troy ounces and our acceptance of them in today’s metric world, is a powerful link to our medieval roots.

The measure of a troy ounce is believed to come from a town called Troyes, a trading market in France during the Middle Ages. Being a major global economic hub at the time, a standard weight system was introduced to make doing business easier.

*ABC Bullion sells products in troy ounces (toz) but we show ounces (oz)

(Click to enlarge)

There is speculation the concept of troy ounces and pounds came from the Roman era traders. Romans used bronze bars as currency. One of these bronze bars were equal to a pound that was called an ‘aes grave’ and one twelfth of that pound was called a ‘unica’. Incidentally, there are 12 troy ounces in one imperial pound. 

By the 1400s, Ken Henry II of England adopted troy weights for a British coinage system, later formalised for precious metals in the 1500s. The US followed suit in the 1800s, by implementing the troy ounce measurements for gold and silver.

A further quirk of bullion weights is ‘tonnes or tons’. Sure, you are and I are the kind of people who buy gold in ounces, but central banks buy in tonnes, and it’s important to know your ‘metric tonnes’ from your ‘short tons’.

A metric tonne is 32,150.7 troy ounces of gold. A short ton, however, is equal to 29,166.7 troy ounces. That’s a massive difference of 2,984 toz or a whopping AU$7.2 million dollars at today’s prices!

Until next time,

Shae Russell
Group Communications Manager,
For ABC Bullion