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Should I Sell Grandma's Locket?Gold prices are really high right now …

By Daniel EngberPosted Friday, April 7, 2006, at 6:10 PM ET

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Gold ringsInvestors pushed the price of gold above $600 an ounce on Thursday, up from around $500 at the end of November. Gold hasn't been this valuable in 25 years. Does that mean it's time to sell your gold jewelry?

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No. The American jewelry market isn't really set up for investment buying and selling. When you buy a gold necklace at the retail store, a major portion of the bill covers the jewelry's design and manufacture. That means the 20 percent increase in international gold prices translates to a much smaller increase in the value of your necklace. The markup is less significant overseas, where many people do consider gold jewelry an investment.

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Don't waste your time biting gold to see if it's real, says Daniel Engber. The Explainer also advises against melting your gold nuggets. Mark Lewis likened investing in gold to making a bet "you wouldn't want to win." In 1996, Paul Krugman went over the case for returning to the gold standard.

If you have a gold necklace, you probably don't know how much gold you have to sell. Retail jewelers almost never tell you how many grams of gold you're getting when you buy an item. They might tell you the purity of the gold used in the necklace—that it's 14 karat and not 18 karat—but not the quantity.

The amount of gold used in a standard piece of jewelry fluctuates with the market. Jewelry manufacturers use more gold per item when gold is cheap and less gold when it's expensive. That way they're able to keep the price of a gold necklace stable, even when gold prices fluctuate wildly. Casual consumers expect to pay a certain amount for a piece of jewelry. If the gold market forced jewelry prices higher, they'd stop buying.

You might wonder why a jewelry retailer wouldn't mark up the necklaces in the window when the newspapers report that gold has become more valuable. After all, that's what gas station owners do when oil prices rise. This difference in behavior can be explained in a couple of ways. First, gas station owners aren't selling a luxury product that customers expect to buy at a certain price. Second, it's much easier for a gas station owner to physically change his prices—all he needs to do is slide a new digit onto the sign and adjust the pumps. If a jewelry retailer wanted to raise his prices even a small amount, he'd have to retag every little item on the shelves.

But all of this goes out the window when the price of gold gets high enough. The political turmoil of the late 1970s helped to push gold from $215 an ounce in 1978 to well over $800 in early 1980. The Associated Press reported mass sell-offs in London and New York: "People formed long lines outside jewelry stores, clutching old coins, candlesticks, watches, bowls—anything that contained gold or silver."

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Explainer thanks Jeff Christian of CPM Group and Toni Logan of Oxford Assaying & Refining Corp.

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Daniel Engber is a senior editor at Slate. He can be reached at .

Photograph of gold rings by Eugen/Corbis.

COMMENTS

If you are thinking of selling your jewlery as the author points out you will most certainly be dissappointed in the amount of cash recieved for the items. UNLESS they are of high karat content.
Jewelry in the US and Canada is usually 14K meaning approximately 55% pure gold to an alloy of copper/tin/silver etc. That 44% left over (the alloy) is the kicker. It is pretty much worthless. And as the author further points out: the jewelry industry has to make a profit when it was sold, so you can figure that the item unless it was purchased and created when gold was very low, say $40/troy oz maybe 40 yrs ago, then it may behove you to sell, that is if it hold no significant personal vaule.
Frankly the best way to sell any gold jewelry is to sell it directly to a refiner. That way you've gotten the best price for it with no middle man (jeweler). However unless you have an established account with a refiner and fairly large quanties of material to sell it may not be practicle either.
If you're thinking of buying gold jewerly as any type of a hedge or investment (not a really good idea unless you're enamored with the piece) it is best to purchase high content gold jewelry,usually over 18K (75% gold by weight) or even higher, such as 22,23K (which you must ask for and hard to find at the street level). However even in purchasing this type of jewelry it is best to know what the retailer is selling at per gram (remember there are 30 grams in a troy oz) Once you know what he's selling it at you can then calculate the 'cost per gram of the item you're thinkin of buying and know how much gold you've purchased, less his overhead/profit.

And if you're just thinking of buying gold for hedge/inverstment (which it is NOT), then buy American Gold Eagles which will have instant marketability.

--vhsslatefray1

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