What is 24K and 22K Gold

1. Introduction

• Brief explanation of gold purity and karats: Gold is a precious metal which is naturally physically malleable. To make it fit for everyday use, the metal is mixed with other metals in a specific proportion to provide strength and make it fit for use while not sacrificing much on the overall appearance. The gold purity levels are measured in the form of karats (K). Higher karat means higher purity and vice versa.

• Why understanding 24K and 22K matters for gold buyers and gold loan borrowers: Understanding different karats available in the market is crucial from a buyer’s perspective. Since the value of gold is dependent on the purity levels, understanding the purity levels can help ensure that the buyer is paying for what they are purchasing and significantly reduces the chances of cheating.

2. What is 24K Gold?

• Characteristics: Gold in its purest form is often referred to as 24K gold. Gold in this form retains its natural characteristics. Such gold has a very high softness, i.e. malleability; hence, its physical appearance can be changed even with bare hands, and it is bright yellow in colour. Since it is in pure form, this means that it is non-alloyed, i.e. no other metals are mixed.

• Common uses: Pure 24K gold is physically very soft and malleable, which makes it undesirable for daily use in jewellery or utensils. Hence, it is more commonly used in the form of coins, bars, or investment-grade gold, which has the main purpose to only serve as an investment and not to be used on a day-to-day basis.

• Relevance for Gold Loans:

• Higher purity means higher valuation: 24K gold is gold in its purest form. Gold of this purity level commands a higher market value, which translates into a higher amount of gold loan. In money terms, 24k

• Why lenders prefer 24K for accurate loan-to-value (LTV) calculation: 24K is the purest form of gold available to purchase. This gold is free from any sort of impurities or a mix of metals. Hence, the market value calculation too is fairly simple, and so is calculating the amount of loan that can be availed against the said gold. Hence, in many cases, the lender prefers 24K gold for giving gold loans.

• Challenges: One of the biggest challenges of 24K gold is that it is highly malleable in nature, which makes it not ideal for daily use in the form of jewellery or utensils (so borrowers often pledge coins/bars) since the 24k gold is anyway not usable as a jewellery piece but is a fantastic collateral to secure a gold loan offer.

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3. What is 22K Gold?

• Definition and purity (91.6%): 22K gold is the most widely used form of gold. This is not the purest form of gold, as it contains 91.6% pure gold and 8.4% mix of other metals. This is done intentionally to provide strength to the gold metal so that it can be used in making gold jewellery.

• Characteristics: durability, mixed with alloys: Since other metals are mixed in the alloy, it provides the much-needed strength to the metal while not losing out on the physical characteristics like colour, shine, etc. The mixing of other metals with gold essentially increases the durability.

• Common uses: The most common uses of 22K gold are to make jewellery and ornaments. It can also be used to make utensils and showpieces, too. Another use of 22K gold is that it can be used as collateral to avail a gold loan.

• Relevance for Gold Loans:

• Most commonly pledged gold, since most Indian jewellery is 22K, almost all the lenders accept gold with 22K purity as collateral to issue gold loans.

• Easy purity testing: Since 22k gold is so readily available in the markets, the purity testing for the same can also be done quite easily. The tests are easy to perform, and with the help of modern tools like purity testers, the purity tests can be done in a matter of minutes.

• Slightly lower valuation than 24K due to alloy presence: Gold loan amount is calculated based on the market value of the metal. Higher purity translates to a higher amount of loan and vice versa. With respect to 22K gold, since the metal includes only 91.6% pure gold as opposed to 99.99% pure gold in 24K gold collateral, the market value and the loan amount also end up being comparatively lower.

4. Key Differences Between 24K and 22K (In Simple Terms)

• Purity and alloy content: One of the biggest differences between the 24k and 22k purity of gold is the gold content; 24k gold is the gold in its purest form. It contains 99.99% pure gold, whereas 22K gold is an alloy which contains 91.6% pure gold, and the other 8.4% is a mix of other metals to provide strength to the alloy.

• Colour and durability: Colour and durability are other points of differentiation between 22K and 24K gold. Although to the naked eye, the colour difference is not noticeable much, however, if compared side-to-side, then the purer gold is usually more yellow. As for the hardness, the difference is stark. 24K pure gold is highly malleable, and its shape and form can be changed easily with the hand, which is not the case with 22K gold, which is comparatively harder.

• Typical usage (investment vs jewellery): While 24K gold is used as an investment, 22k gold is more commonly used for making jewellery due to the strength benefit it offers over the 24K gold.

• Impact on Gold Loan Value:

• 24K gets the highest value per gram: The loan-to-value ratio (LTV), which decides the amount of loan that can be availed for the said gold collateral, is dependent on the market value of the said collateral. Due to the difference in the purity level, the market value of 24K gold is higher than that of 22K gold. Hence, you can avail a higher loan amount for a 24K pure gold collateral.

• 22K gets slightly lower but is widely accepted: Even though 22K pure gold collateral fetches a comparatively lower gold loan amount than 24K pure gold, but it is widely accepted by many lenders. Some lenders may have a restriction on lending against gold coins/bars of 24K but almost all the lenders lend against 22K gold.

5. Loan-to-Value (LTV) for 22K and 24K Gold

• RBI guidelines on maximum LTV: As per the guidelines from RBI (Reserve Bank of India), the maximum LTV (Loan to value) ratio that can be availed for gold loans is 75% i.e. if the value of the gold is INR 1 lac, then the maximum loan that can be availed will be INR 75,000. This is dependent on the value of the gold, which in turn is dependent on the purity of the gold. Lenders like indiagold offer one of the highest LTV ratios in the industry!

• How purity affects the final eligible loan amount: The market value of the gold is directly proportional to the purity of the collateral. The market value of the collateral influences the maximum amount of loan that can be availed. Hence, a gold collateral of a higher purity can help in availing a higher loan amount!

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6. Tips for Borrowers: Maximising Loan Amount

• Prefer hallmark jewellery: Hallmarking in India is performed by the BIS (Bureau of Indian Standards) and is the most reliable way to identify the purity levels of the metal. If you’re planning to avail a gold loan, then it is prudent that you collateralise your jewellery with a hallmark, as many lenders prefer hallmarked gold collateral.

• Carry purchase invoice (if available): While applying for a gold loan, it is advised always to carry the purchase invoice. Although many lenders do not ask for it, it is a good supporting document to cross-check the weight and the purity of jewellery at the time of purchase versus what is being collateralised.

• Clean the jewellery before pledging: The calculation of the gold loan value is done basis the weight and the purity of the collateral. It is important to note that only the gold weight net of any stone/dirt, etc, is considered for the calculator. Cleaning the jewellery helps in getting rid of any dirt, which helps in measuring the weight more accurately and subsequently arriving at a more accurate value of the gold, which has an impact on the gold loan eligibility.

• Choose lenders who use accurate purity testing machines: This is extremely important as doing so will help in availing the maximum loan-to-value (LTV ratio) on your gold loans. Lenders like indiagold have one of the most sophisticated tools to test gold during the assessment process.

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