Gold Fever (part 1)
Posted on March 21, 2011 by John Fritze Jr
With gold prices at the highest they have ever been, everyone seems to have a bit of gold fever. It’s hard to help it as we constantly are being deluged with ads telling us to “sell your old, broken and unwanted gold jewelry”, or “we pay the highest prices”. However, almost simultaneously we are being told now is the time to buy gold! Buy…Sell….Buy….Sell. So which is it? How do you know you are being treated fairly? How do you get the most from your transaction? Is gold a good investment? These are all important questions and things to consider when dealing with any commodity, not just gold.
First of all, consider this: all this advertising costs a LOT of money. TV, radio and newspaper ads are not cheap. Yes, the more a business advertises with a certain medium, the cheaper it is per ad. However, it is still expensive. A small local retail jeweler told me he spent over one million dollars from Thanksgiving to Christmas for advertising. For all that money, I never even saw one of his ads. So imagine how much some of these large chain stores such as Kay’s or Littman’s spends during a minor event such as graduation sales, let alone during the holiday season. How many jewelry ads do you hear in a row? Imagine how many millions of dollars are being spent just within your listening area. So here’s the question: Where do you think this money comes from? It comes from you. If it was not profitable for these companies they wouldn’t do it.
Businesses that purchase gold from the public have to make a profit. That’s why they do it. Yes, I make a profit too. The question is: How much profit is fair? When you go to the grocery store, they have items on the shelves you need. You either purchase that loaf of bread or not, based upon what the price is. If it’s too much, you’ll walk away in hopes of finding a more agreeable price at another store. A grocery store has to decide exactly how little they can sell that bread for, pay their advertising, salaries, mortgage, insurance and a myriad of other costs and still make a profit. They really want to sell that bread for as little as possible because they don’t want you to walk out looking for a better deal elsewhere. Well, the same is true for businesses that purchase gold, except in this case they are trying to pay you the maximum they can so you don’t leave. All the expenses have to be offset by profit margin. The main difference is that you are walking out with the money after you hand over your old jewelry. The main thing to consider is that your gold is the purchasing agent for the money you receive. “Gold is the same as money” as my father used to say.
Gold is traditionally sold by the “Troy ounce”. Named after Troyes, France, the troy system of weights is known to exist in medieval times. A Troy ounce is approximately 1.1 “Avoirdupois ounce” which is the typical unit used in the grocery store, post office or your kitchen scale. Troy weight is also twelve ounces per pound unlike the sixteen ounces in an Avoirdupois pound. A Troy ounce can be split in smaller units called pennyweights, abbreviated DWT. The D stands for “denarius” named after an old Roman coin. The term “pennyweight” is from the original British pound sterling monetary system. Two hundred forty British pennies weighed the same as one pound sterling.
As if that isn’t confusing enough, many jewelers today use “gram weight” when dealing with precious metals. While this is not traditional, it is a metric system used in many places in the world. There are 31.1 grams in a Troy ounce. Grams are smaller than pennyweights, so compared to the pennyweight system, it looks like you have more metal, when in fact it is just another unit of measure.
Now here’s another thing to consider: Gold comes in different “Karats” or fineness. Fine (or pure) gold would be 24 Karat (1.0000). Generally fine gold is marked .999 or .9999 or .9999/1.0000 or something similar. Most jewelry is a lower fineness such as 18K (.750), 14K (.585) or 10K (.417). An ounce of 10K is worth about half of an ounce of 18K. An ounce of 18K is worth 75% of an ounce of 24K. When I or any other jeweler purchases your broken jewelry, I need to separate the Karats, and weigh the individual piles, then add the amounts for a final total.
To further complicate matters, your gold has to be CLEAN. That means: no stones, no steel springs (as in lobster clasps, cuff link backs and lever earring backs), no glue or fillers, and as little solder as possible. All those things add weight which can skew the total value. An example of clean gold would be a basic wedding band. Almost no one has clean gold. Most people give me items with tiny stones, spring catches, and such. Removing all this takes time. Time is money. That said, some stones can be reused, as can some catches and the like. So while I need to mentally decide the cost of cleaning your scrap, I also figure what the stones and other parts are worth to me which offsets a lot of this labor. If you tell me you want your stones back, you will get less money than if I can use them. Consider that most gold buyers do not pay anything for any stones. There is a HUGE amount of money being made by unscrupulous buyers telling you that your stones are not worth anything. Some stones are so inexpensive to replace, such as onyx, garnet, amethyst, pearl and such that they rarely have any value on the used market.
In other words, you can not just throw your old jewelry on your postal scale and figure out what you should receive in cash. My best advice is to talk to the person you wish to sell your scrap gold to. It’s OK to ask questions. Find someone who gives you straight answers that you are comfortable with. Deal with someone who has an established business and location. Someone who comes to town and sets up a business in a hotel room, who blankets the area with ads, offers to pay “up to” some sky high amount (but really never does), then packs up and is gone tomorrow never to be seen again, is probably not the smartest place to do business. How do you know that packing up your jewelry and mailing it to some “national refiner” who proposes to cut out the “middle man” in order to pay the “highest prices” for your unwanted jewelry is really doing that? Do the paid actors waving money in front of the TV camera convince you? Get real.