Wikinvest Wire

How much cash for your jewelry

Tuesday, February 03, 2009

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:

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.




Anonymous said...

What a ripoff. Do jewelry salesmen pitch purchases as a "good investment"?

Mathlete said...

Maybe because of the links, there's now a Cash4Gold ad from Google Ads. Irony!

Tim said...

Yeah, I've seen the Cash4Gold Google ads quite a few times during the last few days. I think they've been big buyers over the last week in addition to the SuperBowl spots.

Anon 3:10 - I have no idea. The numbers certainly give a whole new meaning to the phrase "wearing your wealth" as they say about India.

trend observer said...

Well-written piece. Relevantly, as many nationally influential voices have repeatedly noted, Obama is part of Generation Jones, born 1954-1965, between the Boomers and Generation X. Google Generation Jones, and you'll see it’s gotten a lot of media attention, and many top commentators from many top publications and networks (Washington Post, Time magazine, NBC, Newsweek, ABC, etc.) are specifically referring to Obama, born in 1961, as part of Generation Jones.

Great op-ed on exactly this topic in USA TODAY this week:

staghounds said...

Buying new commercial jewelry at retail has always been very very stupid.

If you think the 3X markup on gold is crazy, look into the market for glasslike chips of carbon. Madness.

... said...

Did ya'll see this today from

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