Is Selling Gold Jewelry to a Cash-for-Gold Company a Scam?
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“For the first time in nearly 30 years, there are more people selling gold jewelry as scrap than buying new items. The high price of gold combined with the economic downturn has encouraged people to raise extra cash by selling everything from family heirlooms to tooth fillings.” “Gold Sold for Scrap Outstrips New Purchases” The London Times (2009)
This is the first time this has happened since 1980. More gold is being sold than purchased. I suspect that people are running out of scrap jewelry to sell, although about half of all gold ever mined is now in the form of jewelry. So there is still a lot out there.
The question we need to answer is: are those gold buying companies such as Cash4Gold and Gold Buyers of America really legit or just scams?
As with so many things in life, it depends.
There has been a tremendous proliferation of the ‘Sell your old gold jewelry and receive hundreds of dollars’ commercials recently. People are holding gold parties like the old Tupperware parties – only this time they’re selling, not buying something. What’s going on? Why the sudden interest? Why are these companies so interested in your gold? Can they really give you a fair price? There’s certainly a new ‘awareness’ of the gold and silver markets out there, but not much analysis or expert advice.
Let’s examine this phenomenon logically. Why would someone want to pay you for your gold? Logical answer: Because they will somehow profit from it. How so? In one of two ways. They will either pay you less than they can turn around and sell it for (i.e. not pay you what it’s worth) or they are hoarding it for higher prices. I think a little of each is going on but certainly more of the former.
Is this legal? Yes. Is it ethical? Maybe. Yes it’s ethical if an educated buyer and an educated seller agree on the terms of sale. No it’s not if the buyer misleads the seller.
Just as the coin dealer has to make a reasonable profit by selling at a premium to you, so a gold buyer needs to make a profit. The question becomes: what is a reasonable profit? And the answer to that, like artwork, is very subjective. Is a 50% profit too much? How about 100%? Perhaps it’s reasonable if the buyer is helping someone by buying what no other buyer will, or traveling a long distance to buy from someone who doesn’t drive and can’t get out. I’m not going to pass judgment. Suffice to say, buyer beware. Educate yourself and shop around just like you would for any other purchase or sale.
Most important, you’ll want to understand karat. Karat is a measure of purity or fineness. Karat measures how much gold is contained in a given item. Here’s a table.
Karat Pure Gold Content
24 100%
22 91.7%
18 75%
14 58.3%
12 50%
10 41.7%
The buyer only cares about the gold content of your jewelry. He does not care one bit about how beautiful it is or how intricate the design. It’s all getting melted in the end. Normally gold is combined with silver for hardness. Silver sells for about 65 times less than gold. The silver content is inconsequential in the transaction. The gold content probably accounts for 90+% of the value of the item.
Let’s do a little exercise. Say gold is selling for $1000 an ounce. Gold is priced for pure (.999 fine or 24k) bars sold on the commodities exchanges. Let’s say we have 2 gold chains. One is 24 karat and the other is 12 karat. Each weighs ¼ ounce. How much are they worth? The first one would be worth $250 and the second $125. How much would we get for them? A good rule of thumb is that you’re lucky to get half of the value at your local pawn shop, jewelry store, or gold party. You might get about $175 for both. While gold is selling for $500 for a half ounce, you’re actually getting about a third of that.
If you think it through, what they pay makes more sense. The buyer has to make his cut. Then it needs to be shipped (and insured) to a refiner. It takes a lot of effort and energy to melt and separate the gold from other metals and then form it into ingots. The smelter also gets its cut. Then the refined gold has to be shipped again to wherever it’s going. With that in mind, it’s not surprising that they pay so little relative to the prevailing price.
However, there are better ways and worse ways to sell your jewelry.
As stated before, you should be able to get about half of the current gold price if selling to a jeweler or pawn shop. What you can get is going to vary widely, so shop around. Anywhere from 25-65% isn’t surprising.
Well, what about the companies that advertise on TV to mail in your gold? A couple of years ago the television show Good Morning America did just that. They received 16% of the value of the weight of their gold. This is common. I continue to hear and read stories about people getting 15-30%. Besides that, once you ship off your valuables, how do you get them back if you don’t like the price? It’s not easy once they have your gold.
There may be a far better solution. Send your metal directly to a refiner. Yes, it’s possible. Refiners will pay you 95+% of the value of your gold. This is where the gold partiers and pawn shops sell it anyhow. Cut out the middle man and ship direct. The main problem in doing so is that the refiners likely have a minimum amount of gold they will accept. You may need to pool your gold with friends. Also, there will probably be a refining or assay fee of about $30 per sale. And don’t forget shipping and insurance costs. Most buyers will not accept gold plated items but will accept gold filled items. Still, this will probably be the most cost effective method for you to sell your gold.
Two companies that were accepting metal from the public at the time of this writing are listed below.
Dillon Gage Refinery 888-436-3489
www.dillongage.com/Metals/RefiningServices/tabid/31/Default.aspx
Precious Metal Recovery 800-882-7729
This material may only be copied or reproduced with permission of the author.
About the author:
Jerry Western is author of the newly available work,
Got Gold? Get Gold.
A Book on How to Protect your Wealth with the 21st Century Gold Rush and
a Layman’s Guide to Riding the Golden Bull and the Silver Stallion.
Jerry also provides a Model Portfolio Service listing his top Precious Metal picks and weighted rankings. The portfolio normally contains 18 to 36 companies.
Ordering instructions are available by e-mailing westernoutlook@gmail.com with either the word ‘gotgoldgetgold’ or ‘peek’ in the subject line.
