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Gold Alert: From Investing in Gold to Buying it over the Counter

by Ed Lewand (05/01/13).

When you’re buying jewelry, the price gold plays an important role. But what the public forgets is there is more to it than just the gold, and this can be applied to other things that you buy everyday too.

As an appraiser often I am asked, “Should I invest in gold?” Let me go over the basics before you decide to invest in gold.

I watch TV and listen to the radio and I hear all of the commercials about investing in gold, and if you have read my article on “Selling and Buying Gold” here on WorthPoint and in the March issue of The Journal of Antiques and Collectables, I explained how to figure gold prices for selling and buying. If not, I’ll quickly highlight those formulas to assist you in making an informed decision.

Here are examples of buying and selling gold:

First, when you by a gold bar, it will be at the spot price of gold (what gold is selling for at that moment) plus fees, so let’s say gold is $1,600 per ounce, plus refiner fees, commissions and shipping fees, etc.—which can range from $25 plus handling to maybe as high as $150. So now let’s say that the total is $1,675 for that ounce of gold. When you sell the gold, you only get money on the gold when you sell it—it won’t pay you interest. So when you go to sell it, you take the spot price of gold. Again, you will have fees, which can be around $25 to $50 or more per bar or ounce. Now you have about a $200 spread in fees, commissions, etc., to cover.

AUTHOR’S NOTE: Also, to state the obvious, the price of gold is not stable. Gold has gone from over $1,600 an ounce at the end of March to less than $1,400 per ounce in April—a drop of more than $200 per ounce. On the other hand, it could have gone up over $200 in the span of a month, too. Just remember gold does not pay interest and profit is only realized when it is sold, so you should keep in mind in that when selling gold in small amounts, you will have to pay those fees each time you sell.

Here is how to make it work:

Purchase an ounce of gold at $1,600 plus fees ($75), making your price for that ounce $1,675. Gold goes up to $1,700 and you go to sell that bar. It would be $1,700 less $75, bringing you $1,625, or a loss of $50. I would suggest if you decide to listen to these commercial’s you hear on TV and the radio, that you learn to track the price of gold and see how gold has historically gone up and down over the last few years.

Also, when you’re buying jewelry, the price gold plays an important role. But what the public forgets is there is more to it than just the gold, and this can be applied to other things that you buy everyday too.

Besides the price of gold for the day the, jeweler or the manufacturer has to also figure in the cost of the polisher, bench worker, caster, shipping, office staff, rent, insurance and, yes, the sales staff. The piece is then sold to the retail jeweler who also has overhead, such as rent, insurance, office staff and employees, too. So, just to give you an example, if a gold chain cost a jeweler $100, he will figure in the cost of his office staff and handing (tagging, entering it into inventory, etc.) and add 10 percent to the cost, bringing the chain up to $110. Now, he has his rent, insurance, electric and phone bills, as well as the staff, so he marks it up two and a quarter times, time bringing the retail price to $247.50.

Keep in mind, when the retailer sells the chain, he has to replace the item, so $110 comes off the top of the $247.50, leaving him $137.50 gross to cover all his other expenses, so by the time everything is said and done, the seller might only be making about 20 percent, or about $49.50 on the sale. And he still has to pay for his own life and expenses beside the cost of the staff and always doing little things for his customers.

Another thing to keep in mind is he might have to discount it at one time to make the sale or have special in order to sell it. If so, take off another 20 percent from the sales price, the price becomes $196 plus the replacement cost and all the other little expenses the jeweler pays and he ends up with very little to no profit. 

If a store if offering gold jewelry at 50-percent off, it means the price was marked up by 100 percent or more. (Photo: deidrew via Flickr)

All of this said, if someone is saying they can save you 50 percent on a piece of gold jewelry, question the quality of the piece or what the original price really is. The bigger the discounts, the bigger the markup; the bigger the markup, is bigger the price tag and the profit. A quick example would be if a store buys a piece of gold jewelry for $100, marks it up five times ($500) then discounts it 50 percent, it is still making $150, or two and a half times the cost. JC Penney changed its theory to fair pricing—in other words making a fair markup—so it cannot really have sales (otherwise, it would be losing money). Meanwhile, a store that can give you 50-percent off, and then another 20 percent and then another 10 percent, etc., makes a profit because it marks the item up so high in the first place, believing that our society is a sucker for a “sale” or a “great deal,” thinking they are getting a good price.

Let me tell you a quick story: When I was working in jewelry store we sold a bracelet called the St. Marcos, which had links that looked like macaroni noodles. Well, this bracelet cost us $145, we priced it $245 and sold it for $185 if we had to. A local department store had a sold the same bracelet—the same weight, same gold content, same design purchased from the same supplier. This store displayed the bracelet with a $1,000 price tag, as well a 50-percent-off sale sign, making the effective sales price $500. Remember, we sold ours for $245.

One day, this woman came in with the department store advertisement and asked if we would give her 50 percent off, too. Well, we looked at the ad and said we sell ours for $245 without a sale, which was a savings of $255. But she insisted we give her 50-percent off, just like the department store was offering. After 10 minutes of all of us trying to explain it to her, as well as another customer who had come, we finally told her we could make that deal and suggested she go to the department store and purchase the bracelet there, which she did. As they say, you can lead a horse to water but you can’t make him drink.

This year’s Jewelry Camp Program will include lectures and hands-on sessions on diamonds and antique and estate jewelry. There will also be a class on gold and diamonds. Will Seippel, the founder and CEO of WorthPoint, will also be there presenting a class on online research

If you have any questions or concerns, please feel free to contact Edward by e-mail at ealcas@msn.com.


Edward Lewand, GG, ASA, AAA is a graduate gemologist and an accredit appraiser from the Appraisers Society of America and a certified member of the Appraisers Association of America. He is also the director of the Antique Jewelry and Art Conference “Jewelry Camp” and educational program on Jewelry and small antiques. He is available for lectures for luncheons, clubs and charitable events and fund raisers by offering appraisal days.

All rights reserved republication with permission.

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2 Responses to “Gold Alert: From Investing in Gold to Buying it over the Counter”

  1. sierraseven says:

    Another point about gold jewelry: be very careful about “nugget” jewelry. Jewelry cast into shapes imitating natural nuggets are sometimes labeled “gold nugget” jewelry – but natural nuggets are worth more than cast, nugget-style jewelry.

    One giveaway is identical “nuggets” – if a pair of “nugget” earrings are identical (or mirror-images), they are not natural nuggets. A “nugget” watch band that has identical links is not natural nuggets. Natural nuggets are all different. Chains made up of small nuggets, for instance, may have nuggets that are closely matched in size, but if you look at them closely, you will see that they are all different. Natural nuggets also may have small quartz inclusions, and are not usually polished to a mirror finish.

  2. One does not “invest” in gold. You simply protect yourself from currency devaluation. A 1 ounce bar of gold remains a bar of gold through the time you own it. If the number of dollars needed to acquire another ounce of gold rises it simply means the buying power of your money has lessened. You can trade in/sell your gold for those less valuable dollars. You will then owe income tax on the increase in less valuable dollars you received.

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