How Much Is an Ounce of Gold Worth?
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Many investors constantly monitor the price of gold to see if the asset has reached a new all-time high or, conversely, has fallen into a range that presents a good buying opportunity. But for less experienced investors, it can feel a bit complicated to follow the price of a troy ounce of gold, and more so since that price can vary depending on the type of gold itself.
This guide will walk you through some of the basics — including troy ounces, spot prices and bid-ask spreads — and how you can use each to understand the current value of gold.
What is a troy ounce?
A troy ounce is different from a standard ordinary ounce. Troy ounces help gauge a precious metal’s purity standards. It’s also a little heavier than a traditional ounce. While one ounce weighs 28.35 grams, a troy ounce weighs 31.1 grams, or nearly 10% more than a traditional ounce.
Troy ounces are also the standard you’ll find when comparing the price of gold. If you look at the current price for an ounce of gold, it displays the price for a troy ounce of gold. You can also find the price per gram or kilogram of gold. If you multiply the price per gram by 31.1, you’ll end up with a price that’s nearly identical to the current price per troy ounce of gold.
Some investors start by purchasing grams of gold to build up their inventory. Investors with deeper pockets may want to consider kilograms since a kilogram of gold holds more value than a troy ounce of gold.
What is a spot price?
Spot prices represent current market prices of commodities, including gold and other precious metals. If gold is currently available for $2,650 per troy ounce in the marketplace, then gold’s spot price is $2,650.
Spot prices reflect how much you have to pay if you want to buy a troy ounce of gold right at the current market offering. A spot price is essentially a fancy way of saying market price, and it fluctuates constantly.
How the bid-ask spread affects the price per ounce
Although the spot price showcases how much you can pay for gold in order to immediately secure it, you actually won’t get it for that price. That’s because of something called the bid-ask spread.
The bid-ask spread deviates slightly from the price of a troy ounce of gold and represents how much a buyer is willing to pay a seller for gold. Meanwhile, the asking price reflects how much a seller is willing to receive for their gold on the open market. The asking price is almost always higher than the bid price.
For instance, assume that gold is currently worth $2,650 per troy ounce. Gold may have a bid price of $2,645 and an asking price of $2,660.
When you buy gold, you buy it at the asking price of $2,660. In this example, that’s $10 higher than the spot price. If you sell gold, you have to sell it at the bid price. Once again using the example above, that means realizing $5 less than the spot price when you sell your gold.
Bid-ask spreads fluctuate based on supply and demand. Changes to the spot price will also affect the bid and asking prices. This spread exists because of market makers — like brokerage firms or individuals that provide liquidity — that make a small profit from each trade. The bid-ask spread is essentially an invisible commission fee.
Commission fees can also impact the price you pay
Some brokerages and gold dealers charge visible commission fees for each trade on top of the bid-ask spread. This typically takes one of two forms: either a flat fee for each transaction or a percentage of the total value. For instance, many brokers charged a per-trade commission fee for all stock transactions until Robinhood changed the industry’s business model in 2013 by offering commission-free trading. Now, almost all of the best stock trading apps and best stock trading platforms don’t charge commissions.
Other brokerages and dealers charge a percentage of each transaction. This fee arrangement is often more expensive, as a 1% fee results in a $26.50 commission for a troy ounce of gold selling for $2,650. You won’t see commission fees reflected in the spot price, but they are necessary barriers to entry that will increase your cost basis.
It’s good to compare multiple sellers and see which ones offer the most competitive fees. You can get started by reading Money’s list of the Best Online Gold Dealers.
How capital gains affect your total returns
One final detail investors should keep in mind is how capital gains taxes will affect their total returns. The IRS treats precious metals — such as gold and silver — as collectibles. That means a long-term capital gains tax rate of up to 28%. The amount you pay in long-term capital gains taxes depends on your taxable income. Precious metals sold within a year are taxed as ordinary income, which results in a higher tax rate.
Capital gains taxes won’t be an issue if you pass your gold onto your heirs instead of selling it while you are alive. That’s because collectibles like gold qualify for a step-up basis. For tax purposes, the cost basis of an asset gets updated to the current market price when the original holder passes away. Using a step-up basis is also one of the best strategies for building long-term generational wealth.
Additionally, if you set up a gold Roth IRA, you can avoid taxes. To learn more, read Money’s guide to how gold is taxed and see our list of the Best Gold IRA Companies.