Chapter 2 of 17

Purity, troy ounces and landed-price arithmetic

Convert metal content and quote units carefully, and distinguish a parity estimate from an executable retail price.

4 min read · Original educational chapter

In this chapter

Mass and purity are separate inputs
Build a transparent estimate
Invoice terms determine an actual transaction
Separate the currency forward from the domestic premium
Attribute returns without losing the interaction term
Decision lab: A conversion is only as consistent as its units
Worked example
Common mistakes
Check your understanding

Mass and purity are separate inputs #

A troy ounce is approximately 31.1034768 grams, not the ordinary avoirdupois ounce. A price per troy ounce must be divided by that mass to obtain a per-gram value before currency conversion. A kilogram contains 1,000 grams.

Fineness describes the fraction of the mass represented by the precious metal. At 0.995 fineness, 100 grams of alloy contains 99.5 grams of fine gold. Karat notation uses 24 as the conceptual pure reference; product terms, hallmark standards and tolerances must be read separately.

Build a transparent estimate #

A simplified fine-metal parity is dollar price per troy ounce × rupees per dollar ÷ 31.1034768. Multiply by grams and fineness to estimate fine-metal content value. That estimate excludes actual import rules, supply conditions and transaction terms.

Retail charges can include fabrication, wastage conventions, premiums, taxes, storage or other costs. Their base and sequence matter. A calculator should label the assumptions instead of inserting a stale tax or duty rate as if it applied universally.

Invoice terms determine an actual transaction #

Check what the quote includes, the purity description, buyback terms, independently verifiable hallmarking where applicable and the identity of the counterparty. A displayed price comparison cannot establish authenticity or the availability of a buyback.

Use the bullion conversion calculator to examine unit and currency arithmetic. It uses only entered assumptions and does not fetch a market quote or provide a landed-price certificate.

Separate the currency forward from the domestic premium #

A rupee parity bridge has at least five independently specified pieces: a metal reference, a currency conversion, mass/fineness normalization, applicable transaction charges and a residual location/product premium. Match settlement dates. A future-dated dollar metal price converted with spot FX can embed an unintended currency funding exposure.

Use the executable side of each quote and the credit/funding terms available to the relevant participant. A theoretical retail comparison does not establish import eligibility, tax recoverability or the ability to finance and deliver metal. The residual after an incomplete bridge is unexplained, not automatically profit.

Attribute returns without losing the interaction term #

With unchanged local costs, rupee metal return is (1+r_metal)(1+r_FX)−1. The interaction term r_metal × r_FX belongs in the reconciliation. If local premiums also change, specify whether you express them additively in rupees or multiplicatively; the attribution depends on that convention.

For hypothetical metal +4% and USD/INR +2%, combined metal/FX return is 6.08%, not exactly 6%. Currency can also offset the metal move. Match the period and instrument reference before using this identity to explain a portfolio’s realised P&L.

Decision lab: A conversion is only as consistent as its units #

Multiplying a dollar-per-troy-ounce quote by USD/INR gives rupees per troy ounce before local costs. Convert to grams with the same troy-ounce convention, then apply declared fineness and cost assumptions. A retail tax-inclusive quote is not directly comparable with a bare international reference.

Build a stepwise unit bridge and stress currency, fineness and premium independently. Reconcile any difference with an actual product quotation rather than labelling it arbitrage. Do not insert a current duty or tax rate without a dated source and applicable scope.

Hypothetical worked example

A transparent, fictional parity calculation

Assume $2,000 per troy ounce and ₹80 per dollar. Fine-metal parity is ₹1,60,000 ÷ 31.1034768 ≈ ₹5,144.12 per gram. For 10 grams at 0.995 fineness, metal-content value is about ₹51,183.99.

If a hypothetical 2% premium is applied and then a hypothetical 3% tax to that subtotal, the estimate becomes metal value × 1.02 × 1.03. These rates are only arithmetic inputs, not statements of current Indian tax or duty.

An invoice can use different charge bases. Do not equate this estimate with a guaranteed purchase or resale price.

Common mistakes

Using 28.35 grams for a troy ounce.
Applying purity twice when a quoted price already refers to that exact product quality.

Check your understanding

What does 100 grams at 0.995 fineness contain?

Make this chapter useful

Can you defend the reasoning?

Before moving on, answer the self-check in your own words and write why each alternative fails. Use the worked example to test that explanation. Then apply it in the module research task; keep the assumptions and the evidence that could change your answer.

Sources and further reading

Further-reading references from the curriculum source list. Contract sizes, expiry calendars, settlement references, margin parameters and tax treatment can change; verify the current operative documents for the actual product. Worked figures are illustrative, not current quotes.

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