Gold - the most desired precious metal

For collectors and investors alike, gold remains reliable and dependable - a thing of permanence in an ever-changing world. Demand for gold has soared during the first years of the 21st century as a very sound asset in uncertain times. The London Mint Office offers a wide range of gold coins to its collectors, available as individual coins or in such series as the Life and times of Queen Elizabeth II or The story of gold, alongside collections dedicated to particular denominations such as the British gold sovereign.

Mankind’s fascination with gold stretches back to ancient times. Wars have been fought over it, while people have given their lives to its discovery and acquisition. By the Middle Ages, silver was the most common metal used in the production of coins. In 1700, Portugal minted their ‘Moedas de Oro’ (Coins of Gold) from a significant quantity of gold discovered in Brazil and used these coins to pay for wool from England.

The characteristics of gold

Gold is easier to model than any other metal. One ounce of gold (31.1 grammes) can be rolled out to the thickness of 0.00001 millimetres or 16 square metres of gold-leaf, without breaking. The cupola of the Kremlin in Moscow is covered with thin gold-leaf.

One ounce of gold can be pulled into a golden thread 8 kilometres long without tearing, and a tonne of such thread would be enough to stretch to the Moon and back. Gold is also a good conductor of electricity and heat, and it reflects light well. All these characteristics make gold very much appreciated in industry and space travel.

Another important characteristic of gold is that neither acids nor oxygen in the air can destroy it. The ancient Egyptians buried their dead with gold items to ensure that they would not miss anything in the afterlife, and gold items found at archaeological excavations are in such perfect condition they look as if they had been produced yesterday.

 

Current availability and consumption of gold

It is assumed that 90 percent of the gold so far produced – around 95.000 tonnes – is still in existence. It is estimated that all the gold ever minted would easily fit under the Eiffel Tower, in a cube measuring just 20 x 20 x 20m.

However, like all resources, gold is not inexhaustible. Professor Rudolf Saager from the University of Zurich estimates that, by using today’s technology, a total of 45,300 tonnes of gold could be produced. Almost half of it is located in South Africa; other important locations are Western Australia, North America and Russia.

As at 2009, about 60 percent of gold consumption came from the jewellery trade and 10% from the minting of coins. The remaining demand is related to investment and industrial use.

Gold terms

The weight of gold is measured in ‘troy ounces’ (1 troy ounce = 31.1035 grammes). Besides the weight, we also speak about the ‘fineness’ of gold, which defines the proportion of pure precious metal per thousandth of the alloy’s total weight. There are two ways of expressing the fineness: in percentage terms or in the number of carats.

Note: carat for gold expresses fineness, and differs from the carat used as a weight measure for precious stones, especially diamonds (1 carat = 0.2 grammes).

Gold mixed with other metals creates alloys, which are harder and usually cheaper:Red gold 33.3-58.5 per cent gold, up to 30 percent copper and 35% silver

  • Red gold 33.3-58.5 per cent gold, up to 30 percent copper and 35% silver
  • White gold 65-80 per cent gold, and 20-35 percent palladium or 33.3-66.7 percent gold, up to 66.7 percent nickel, up to 10 percent copper and tin

Some coins are made of pure gold (99.99 percent), but more often they are manufactured from 90 percent gold and 10 percent copper, as this makes the coin surface harder.

After processing the gold, it is cast into bars. A standard bar of gold weighs about 400 ounces (12.5kg). The fineness, the brand of the producer and the bar number are punched on the bars. The fineness has to be at least .995 (99.5 per cent); the bar number identifies the bar and is registered. Some standard bars go to the safes of national banks, but most of them are melted for further processing (for example as blanks for coin mintage, small bars of 1kg, 100g, 1oz; and granulate material for the jewellery industry).

Gold in coin mintage

By the beginning of the 19th century, most countries had introduced a money system with gold and silver coins. Even when precious metals were replaced by non-precious metals or banknotes, the value was always expressed by gold.

As director of England’s Royal Mint, Sir Isaac Newton fixed the standard value for gold at 4 pounds, 4 shillings and 11½ pence per ounce. This meant that everybody who wanted to exchange one ounce of gold for banknotes or coins received exactly this amount of money. This system worked for 200 years but was abolished during the First World War, when gold coins were no longer valid means of payment with equal values.

The British gold sovereign, the French Napoleon, as well as Austrian ducats and krones had been used for investment before, but only in 1967 was a coin introduced whose main purpose was an investment and not a means of payment. The South African Krugerrand became the predominant way for private individuals to buy gold bullion, and its success prompted other countries to issue gold bullion coins. By 1980 Krugerrands accounted for 90% of the gold bullion coin market. The Krugerrand is unique in legal tender history because it has no official face value - they are traded based on the world market price of gold. Today, the Krugerrand is one of the world’s most renowned gold investment coins.

 


Silver

Silver is the most common precious metal. Like gold, it has been known to the human race for thousands of years. It is softer than copper but harder than gold, and it is easy to polish. Of all metals, it conducts heat and electricity best.

The characteristics of silver make it practically impossible for the industry to replace it with another metal. It is therefore not surprising that industrial demand has increased since 1950, and especially since the 1990s. Before digital photography, silver was heavily used in the photo industry (cameras, film processing), but was still crucial for the electrical industry (batteries, condensers, computer chips), the chemical industry and others (alloys).

Because the percentage of silver in these products is tiny, not only does a change in silver price not have much effect on the cost of these items, but recycling is not an economic proposition. Gold, on the other hand, is much more valuable and will be extracted from articles containing even a small amount that have come to the end of their useful lives. Consequently, much of the gold that has ever been mined still exists, while much of the silver is lost forever.

Hydrosulphide, which exists in the air, corrodes silver. This means that in normal temperatures, silver tarnishes black in time. Because silver is easy to polish, this tarnish can be eliminated with a soft cloth or prevented by storing silver in an airtight container. This is one of the reasons why The London Mint Office always deliver proof coins in capsules and asks customers not to touch the coins with their fingers, which would speed up the corrosion process.

Some 75 percent of silver is produced as a by-product of mining for other minerals and metals. It thus rarely exists in its pure form, but always as an alloy with other metals.

Since 1990, with annual worldwide demand for silver of about 800 million ounces, and availability running at around 650 million ounces, there has been a deficit of about 150 million ounces per year, which has been filled from existing stock. The United States has a reserve of 3 billion ounces, which has been much called upon in the last 30 years. In Autumn 2000, the last reserves were apparently delivered to the US Mint for the American Silver Eagle. The demand for silver is increasing by about 4 to 5 percent per year. The amount produced never increases, so the gap between supply and demand is becoming bigger.

The weight of silver is expressed in troy ounces rather than carats, with 1 troy ounce equating to 31.1035 grammes. As with gold, the ‘fineness’ is a measurement of the purity of the metal expressed in parts per thousand. 999 (99.9 percent) = pure (or fine) silver

925 (92.5 percent) = 925 parts silver, 75 parts alloy metals (an alloy is also called sterling silver)

835 (83.5 percent) = 835 parts silver, 165 parts alloy metals (e.g. a German standard)

800 (80 percent) = 800 parts silver, 200 parts alloy metals (e.g. Canadian circulating coins)

In most countries, 80 percent silver is the minimum concentration of silver in an alloy, allowing it to be called ‘silver’.

How the silver price can change – and what this means to coins

In 1973, the Hunt family of Texas, then possibly the richest family in America, decided to buy precious metal as a hedge against inflation. Gold could not be held by private citizens at that time, so the Hunts began to buy silver in enormous quantity.

In 1979, the sons of the patriarch H.L. Hunt, Nelson Bunker and William Herbert, together with some wealthy Arabs, formed a silver pool. In a short period of time, they amassed more than 200 million ounces of silver, equivalent to half the world’s deliverable supply.

When the Hunts began accumulating silver in 1973, the price was in the $1.95 range. Early in 1979, the price was about $5 per ounce; and in late 1979 and early 1980, the price was in the $50s, peaking at $54. In order to be able to sell silver and profit from the high prices, many people melted their coins down.

There have always been other reasons to melt coins. For example, during World War II, governments needed the metal for industrial purposes, and when euro coins came into circulation in 2002, old-denomination silver coins were exchanged at national banks for the new euro and subsequently melted down.

This is why many older silver and gold coins are only available in a much-reduced quantity – for most coins, there are only vague estimations about the real number available, even when the number originally minted is very clear.


 

Platinum

The word ‘platinum’ sometimes implies a status higher than gold, as platinum albums and platinum credit cards attest. However, widespread knowledge of the white metal stretches back only a few hundred years, as opposed to thousands of years for gold.

Platinum is the rarest metal in the world and some types of platinum, for example ‘Rhodium Platinum’ , are even more expensive than gold. It is found as small nuggets or in combination with other metals. Platinum is extremely heavy: a cube with a length of only 10cm per side has a weight of 21.5 kg.

Despite being worked with some skill by South American Indians over 1,000 years ago, it was not until after the Spanish conquest of the New World during the 15th and 16th centuries that news reached Europe of a new white metal with unusual properties. Discovered in 1735, in Colombia, the name platinum was taken from the Spanish platina, meaning ‘little silver’. France’s Louis XVI proclaimed it the only metal fit for royalty.

Platinum reached its peak of popularity in the early 1900s when it was the preferred metal for all fine jewellery in America. Today, platinum is the world’s most expensive precious metal.

Uses in jewellery

The most beautiful jewels have been set in prestigious platinum, which is treasured for its beauty and elegance. Jewellery, which accounts for nearly 40% of total consumption, is the largest application of platinum. In 1908, the famous 530.20-carat ‘Star of Africa’ was set in platinum in the Royal Sceptre. It is part of Britain’s Crown Jewels, which boasts the legendary Kohinoor Diamond, which is also set in platinum.

In its pure form, platinum is very soft. To make it stable, other metals have to be added as an alloy, 50 parts in 1,000 are sufficient to make it hard enough for producing jewellery. ‘Real’ platinum (Pt) is marked with 950 Pt (950 parts per 1,000).

Uses in industry

Early in the 19th century, new refining techniques increased platinum’s availability for use in a growing number of industries. As more platinum became available, it was soon being used in gun parts, sophisticated batteries and fuel cells, in the production of caustic chemicals (the first platinum sulphuric acid boiler weighed over 400 ounces) and the purification of hydrogen.

Thirty tonnes of platinum are produced each year. All the platinum ever mined would occupy cube 7.60 metres on each side. Although demand has soared in the 21st century, supplies are limited to only a few sources. Ten tonnes of ore must be mined to produce a single ounce of platinum. It takes five months to process platinum ore into pure platinum.

Platinum is the active pollution-fighting element in a motor car’s catalytic converter and is also used to fight emissions in factories, bakeries and dry-cleaning operations. In the expanding high-technology industry, platinum is integral to the manufacture of fiber-optic wires, semiconductors, computer disks and the developing technology of proton-exchange membrane fuel cells.

Modern platinum bullion coins, Platinum Eagles, Platinum Maple Leafs, Platinum Koalas, are a convenient way to own platinum. However, investors should be aware that the platinum market is extremely volatile because of unstable supplies and because demand is concentrated in a few industries which are sensitive to economic downturns.


 

Palladium

Palladium is a silver-white metal that is both ductile and malleable. It is more prone to attack from common acids than other platinum metals and has a tendency to pick up such gases as hydrogen and oxygen. Palladium can absorb hydrogen up to 900 times its own volume. It is fairly reactive chemically and readily forms metallic compounds.

It took nearly 200 years for the significance of palladium to be recognised. The battle against global pollution owes much to this unique metal, which was first isolated by British scientist William Hyde Wollaston in 1803 as part of his attempt to obtain pure samples of platinum. He named the metal after the newly discovered asteroid Pallas, which was only the second asteroid ever discovered. Pallas was the ancient Greek goddess of wisdom.

Its use took off in the 1970s when demand for catalytic converters increased as automobile emission standards were introduced. As these standards were tightened and applied globally in the 1990s, demand for palladium - a key component - expanded exponentially. Today, palladium is produced in Ethiopia and Australia but principally in Russia, which supplies 90 percent of the worldwide demand. Palladium is also applied as a ‘stiffener’ when used with gold or silver in dental inlays and bridgework, to make springs in analogue wristwatches, in contacts for telephone relays and high-grade surgical instruments, and as a catalyst in synthetic organic reactions.

Palladium coins have only been minted since 1987 and at the moment claim only a small share of the coin market. Palladium coins have been issued by Russia, France, Bermuda, Australia, China, Portugal, Tonga, the Isle of Man and Samoa. Due to the small quantities minted, the value of the precious metal and the high minting quality in proof, these coins are very valuable and are bought by investors as well as collectors.