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Originally Posted On: https://www.raremetalblog.com/carat-vs-karat-whats-the-difference/
In the world of precious metals, it is quite common to mix-up carat with karat. While the two are pronounced exactly the same, they are not similar at all. Even though they are both units of measurements, it is in the details that the true difference lies in.
They are used for measurements of two very different things too. If you are interested in precious metals or in diamond jewelry then it is worth knowing the difference between these two so you can be completely aware of what you are getting yourself into.
A brief history lesson
Both these terms have somewhat similar origins. In ancient times when standard units of measurement weren’t a thing, objects found in nature that had a fairly regular size were used to measure stuff. One such thing was a pod of beans.
It would stay fairly uniform in size. Bean pods had a similar name in many languages at the time and depending on what was more abundant locally, it was used to either quantify gems or precious metals.
This of course evolved into the modern units – carats and karats. It somewhere along the way that the differences came into existence too. Here is everything you need to know about these two units of measurement.
Karat is all about gold and other precious metals
This is the unit that should interest people looking to invest in Gold and other precious metals. Gold IRA account holders should also know about this.
Contrary to popular belief, most of the gold that can be bought isn’t 100% pure gold. It is usually mixed with other metals to form an alloy. Karat lets you know the amount of gold that is in the alloy. In other words, its a measure of the purity of the gold bar, coin, etc. The same applies to other precious metals.
So, what exactly is a karat? Imagine if the alloy was divided into 24 parts. The number of parts out of this 24 that is pure gold depicts its karat value. A 16-carat gold bar means that for every 16 parts of pure gold you will get 8 parts of some other metal. Thus, the purest gold you can buy would be 24-carat gold. This measurement can be applied to other precious metals such as platinum, palladium and silver.
Carat is all about diamonds and gems
When it comes to precious stones, knowing the exact composition is very difficult. Instead, it is quantified based on its size. In simple terms, the bigger the better. This is also the unit that is closest to the root word from which both karat and carat evolved.
Carat is all about the physical girth of a diamond or gemstone. In its very early days, the approximate size of a bean pod was taken as 1-carat. Even though bean pods are fairly regular when it comes to size, they still had some differences and this meant that the same diamond or gemstone would be valued differently by different dealers.
To avoid any such discrepancies, the modern carat that is in use has been standardized at 0.2 grams. This means that a 5-carat diamond would weigh 1 gram.
The big differences
As you can see, the modern karat and carat couldn’t be any different. The only similarly perhaps is that they both are used to measure the value of precious things. Here is a list of all the differences between them.
- Karat is the ratio of pure gold (or precious metal) with relation to other metals in the alloy while carat measures the total mass of a diamond or gemstone.
- Karat is the measure of the purity of the alloy while carat measures the physical girth of the precious stone.
- Karat can have a maximum value of 24 while there is no limitation when it comes to the carat.
- A small coin and a large bar of gold can have the same karat value but diamonds and gemstones that vary in size will also vary in their carat value.
- Knowing just the karat value isn’t enough to find the total monetary value of an unknown amount of gold or precious metal while knowing the carat value of a diamond or gemstone is enough to surmise its worth.
Why these differences matter?
It might not seem like a big deal but knowing the difference between these two is very important. If you are planning to buy gold or some other precious metal, it can be very easy to get duped into buying a bar or a coin with a lower karat value at the price of a higher one.
Many people wrongly assume that gold, silver, platinum, palladium are all sold by their weight. This is only partially true. A 12-karat bar of gold will be substantially cheaper than a 24-karat bar of gold even if their weight is the same.
Another avenue where this helps is in weeding out untrustworthy dealerships and firms. One of the biggest challenges faced by people trying to invest in gold is finding a firm they can trust. If any company that you are screening uses carat instead of karat then it is a clear sign that they do not know anything about gold or precious metals and that you should look for a different firm.
Something similar can happen when buying diamonds and precious gems. A gemstone can be sold off at a higher price to someone unaware of the difference between carat and karat.
The impact it has on investment in gold and precious metals
The most obvious impact is the value per kilogram of the precious metal. If you are buying gold that has a lower karat value, you can buy more of it for the same amount of price. This can be helpful if you want quantity rather than quality. People dealing with multiple firms can go this route. You can go the opposite route if you want a compact form factor for your wealth.
Investing in gold and precious metals is a great idea but knowing all the facts will ensure that your wealth retains its value just the way you want it to.