How much cash for your jewelry

Yesterday's post on Cash4Gold's Super Bowl advertisement resulted in a few enlightening comments and two links detailing how the company operates, at least according to a former employee and a customer who was at first unhappy, then happy, then very curious.

Here are the links:

• Cash 4 Gold would like to melt down and recast their reputation
• Ten Confessions Of A Cash4Gold Employee

Having wondered exactly how much of a hit sellers of jewelry were taking even under the best of circumstances, a characterization that would seemingly apply to Cash4Gold only if you called back to complain that your check was too small (you'll have to go look at those links above to fully appreciate this), an article popped up at Commodity Online earlier today that goes a long way in answering that question.

Recall that, yesterday, in reference to the company's claim that they pay 50 to 80 percent of the gold spot price for most items, the following was pondered:

It would be interesting to know what kind of a haircut this would be off of a "typical" retail price for the stuff (if there is such a thing). Most people are deluding themselves if they think that jewelry is anywhere near as good an investment as gold bullion in coin or bar form which, today, fetches about $20-$30 over spot.

While the article "Is it worth investing in gold, silver jewellery?" is well worth reading in its entirety because, not only does it unequivocally answer the question posed in the title, but it makes a number of other good points about investing in precious metals, the relevant excerpts to help answer the question asked yesterday are below.

A very large necklace containing 1 ounce of pure gold (0.9999 pure or 24 carat) will normally cost well in excess of 250% of the actual market price for gold. If gold is trading at £560/oz, this means the necklace will likely cost at least £2,000/oz plus the VAT. A gold bar which also has 1 ounce of pure gold (0.9999 pure or 24 carat) will be sold at the trading price plus a small mark up of around 5% or £588 (£560/oz+5%=£588) and no VAT.

While these considerations start at purchase, there are also draw backs when it comes to selling the jewellery bought as an investment. Unfortunately for the vendor, re-sale jewellery would not normally realise more than 30% of its original cost price.

It's not exactly clear what a re-sale value of "30% off its original cost" means but, fortunately, that's not important to do the calculation that is required here.

To make things simple, assume a spot price of gold of $1,000 and then start with that necklace described above that contains one ounce of gold:

• $1,000 x 250% + 10% Sales Tax = $3,800 total cost
  

Using the best-case scenario of 80 percent of spot just before being melted down:

• $1,000 x 80% = $800 total proceeds
  

That would be a total loss of almost 80 percent, assuming that the $1,000 spot price of gold had not changed from the time the necklace was purchased until the time it was sold.

Looked at another way, from the time jewelry is purchased to the time it is sold for scrap, the spot price of gold would have to increase by a factor of almost five - to $4,750 an ounce using the example above - before you could break even.

Wow! Even I didn't think it would be that bad.

ooo