Mighty Bargain Hunter

Melt value

April 9th, 2006 | by mbhunter |

If you’re into precious metals investing, one good way to get involved is to own bullion (the metal itself) directly.  You can buy bars of the stuff, or buy coins with a substantial content of some precious metal, like gold, silver, palladium, or platinum.

The more current, more common bullion coins are pretty straightforward in the amount of precious metal they contain.  Krugerrands, for example, contain fractional troy ounces of gold (1/10, 1/4, 1/2, or 1 troy ounce).  Canadian Maple Leaf coins are much the same, and they come in gold, silver, palladium, and platinum varieties.

Others do not have such a simple amount of precious metal in them, so the calculations begin.

One troy ounce is 31.104 grams, which is about 10% heavier than a standard ounce, which is about 28.3 grams.  The spot price of gold (as seen from Kitco.com or Monex.com) is for one troy ounce.  Monex also has quotes for particular bullion coins.  These prices are slightly higher than the spot price becuase there is a premium for minting the metal into coin form.

Given a coin you haven’t seen before, how can a value for the coin be calculated?
That’s a broad question, but you can usually set a floor to the value of a coin (or other object containing precious metal), called the melt value.  The melt value views the only valuable part of the coin as the precious metal content.  Other metals in the coin, any minting premium,and any numismatic premium such as rarity, condition, luster, etc., are ignored.  The melt value, then, is just the spot price of the precious metal in the coin.  Here are some examples:

• The melt value of a one ounce Krugerrand is the spot price of one troy ounce of gold (let’s say $580).
• The melt value of a 1897 $10 American Eagle is the spot price of 0.4838 troy ounces of gold, or $580 x 0.4838 = $280.60.  (These coins weigh 0.5375 troy ounces and are 90% gold.)
• For a 1942 50-peso gold coin, with 37.5 grams of pure gold (which is stamped right on the coin) the melt value is $580 X (37.5 g / 31.104 g) = $699.25.
• This works for non-coin items as well.  If you have a 5-gram, 22-karat solid gold chain, the melt value is $580 x (5 g / 31.104 g) x (22/24) = $85.47.
• Or how about 200 grams of sterling silver forks?  Say the spot price of silver is $12/ounce.  Then the melt value of the silverware is $12 x (200 g / 31.104 g) x 0.925 = $71.37.  (Sterling silver is 92.5% silver, 7.5% copper with a little other stuff.)

And so on.  The usefulness of the melt value is that it’s basically a guarantee of the value of the item at that point: You should be able to sell the item for at least this amount.  If you see something going for less than melt value, grab it (after verifying that it’s authentic).  Any numismatic value is icing on the cake!