Ask: the coin or bar’s selling price
Bid: the coin or bar’s buyback price
Coin Grading: the system used to describe the condition of the coin (typically on a low-to-high scale of 1-70)
Markup: the amount to a coin or bar’s cost to reach the selling price
Melt Value: the value of a coin or bar based on the precious metal content then multiplied by the price of the metal.
Obverse: the front or “head” side of the coin
Premium: the amount charged above a coin or bar’s melt value
Reverse: the back or “tail” side of a coin
Spread: the difference between what a coin or bar’s asking price and the bid price
Spot Price: The price paid for a precious metal with immediate delivery (may be referred to as the ask, selling, bid or buyback price)
Financial hedging is where a company or an investor looks to reduce or eliminate their exposure to an asset they already own. This can be done by taking an equal and opposite position using futures contracts. An owner of silver for instance, fearing a price drop ahead, could sell futures contracts which will rise in value if silver falls. That profit offsets the loss, creating the ‘hedge’.
The main use of hedging is by commercial businesses involved in the production of a raw material or product. In the gold mining industry, so-called ‘producer hedging’ became increasingly popular during the long price drop of the 1980s and ’90s. Fearing further price drops ahead, which would result in lower revenues for gold miners, the industry as a whole borrowed and sold 3,100 tonnes of gold by 2001 – then equal to 15 months of the world’s entire gold-miner production. That locked in current prices, with the gold loan ready to be paid back as the miner dug gold from the ground in future. Some miners became over-hedged however, losing money when the gold price then began to rise. The industry started to close its hedging positions, buying back the metal it had sold at rising prices. The gold miners’ hedge-book was effectively closed in early 2011, as prices rose to new all-time highs.
Inflation is characterized by widespread and continued price rises that reflect a loss of purchasing power in a currency. What can be bought with 100 Dollars today, for instance, is much less than could be bought 20 years ago. When a currency loses value more rapidly, demand for gold or silver in that currency may rise as individuals look for a more stable store of wealth and value.
One troy ounce is the standard unit used for weighing and pricing precious metals in the English-speaking West. Coming from Troyes in France, the troy ounce is not the same as an imperial ounce, weighing 1.097 times as much. The troy ounce is used to quote benchmark prices in the London physical and New York futures market. 1 kg = 32.1507466 troy ounces.
A Treasury bond is a fixed-income investment, sold by the US government to raise spending money. T-bonds (as they’re also known) then trade in the investment market, rising and falling in price to reflect interest rates, the outlook for inflation, so-called ‘safe haven’ demand when stock markets fall, and also concerns over the amount of US debt in issue. Treasury bonds’ annual interest payments are fixed in Dollar terms, as is the redemption value of each bond when it matures and the US government pays back the principal loan to whoever now owns it.
Exchange Traded Funds – ETFs
ETFs are a financial instrument traded on the stock market and designed to track the market price of another asset, such as a group of businesses, bonds, or a specific commodity. Created as a trust, an ETF will typically hold enough of the underlying asset to back its market value. Investors then own shares in that trust, but do not own the underlying asset directly.
The largest gold ETF is the SPDR Gold Trust (ticker: GLD). At the gold-price peak of 2011, it was the largest ETF in the world, overtaking the S&P ETF (ticker: SPY), which tracks the value of the US stock market. To cover storage and other fees, the SPDR charges an annual management fee of 0.40%. It is deducted daily from the amount of gold backing each share, meaning that the net asset value of the shares shrinks over time, down from one-tenth of an ounce at launch in 2004 to some 96.5% in late 2013.
Assay – A test to determine the quality and purity of a gold or silver product. When a gold or silver product ships with an “assay”, this is a guarantee from the assayer that the product in question does indeed contain the described amount and purity of gold or silver.
Brilliant Uncirculated – A coin that has never been in circulation, and is in shiny, new, and immaculate condition.
Circulated – Coins that have been distributed to the public as currency. Usually in much worse condition than uncirculated coins.
Commodity – A physical product that is commonly traded and holds value based on the product’s industrial and commercial value.
Condition – The condition of a gold or silver bar, round, or coin. Common conditions are “New”, “Varied”, “Brilliant Uncirculated”, “Proof”, “Circulated”, etc.
Divisibility – How easy it is to piece out and distribute a fixed weight of a certain product. Ex: Ten 1 Ounce Silver Bars are more divisible than One 10 Ounce Silver Bar.
Gold-Silver Ratio – The amount of silver you can buy with one ounce of gold, based on present spot prices. Ex: a gold-silver ratio of 50 means that one ounce of gold would buy fifty ounces of silver at present prices.
Junk Silver – Any silver product that contains less than 90% silver content. Junk silver products usually contain between 35% and 90% silver. Ex: pre-1965 US coins.
Legal Tender – Coins that can be used as national currency. Ex: The 1 Ounce American Gold Eagle has legal tender of $50 USD.
Liquidity – The ease of buying and selling a certain product or metal. Ex: 1 Ounce Silver Bars are extremely liquid, as there is a huge active base of both buyers and sellers.
Mint – The refining or fabricating company which created a certain bar, round, or coin. Ex: Golden State Mint.
Proof – A coin that has been struck with greater pressure than normal using special dies to make the design more highly polished. Proof coins are collectibles and trade at a higher premium than brilliant uncirculated or circulated versions of the same coin.
Purity – The gold or silver content contained within a bar, round, or coin. Usually displayed as .XXX. Ex – .999 1 Ounce Silver Bars, indicating 99.9% purity.
Monster Box – US Mint sealed boxes of Silver Eagles. … Occasionally, a Silver Eagle Monster Box is called a Green Monster Box because of the box’ deep green color. A Silver Eagle Monster Box contains five hundred 1-oz .999 fine Silver Eagles, which are packaged twenty-five tubes to a box, twenty Silver Eagles to a tube.