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The rise and rise of the scrap gold market

Wednesday, October 6, 2010

Selling scrap gold may be increasingly popular in the current market but like anything else, it pays to know a little about that market before you enter it.

 

The sale of unwanted gold jewellery or scrap gold seems to be an ever increasing trend, with the opportunity to get cash for gold promoted in TV commercials, porn brokers, jewellers and online. The steady rise of gold over the past seven years and the current recession are key factors in the popularity of this market. 

A steady rising price for gold tends to reinforce its image as a good investment during economic uncertainty thus fuelling further demand.  India tends to be the largest consumers for gold partly due to religious and cultural requirements. Around two thirds of total demand is for jewellery.  Industrial demand is relatively small but primarily in the electronics industry where its non-corrosive properties and electrical conductivity are beneficial.  The supply of gold from gold mines is relatively inelastic due to the long lead times for new mines to come to production.  This means that growth in demand can quickly lead to higher prices as we have seen in the last year.  Recycled gold accounts for approximately one third of the supply of gold and therefore has a significant role to play in the market.  It is also a good thing for the planet by reducing the impact of further gold mining on the environment.

There are numerous investment opportunities for gold: bullion coins, small gold bars, traded securities, gold accounts, and gold certificates.  The idea of a Harry Potter style Gringotts bank holding your gold may seem quite appealing and it is possible to have your very own secure holding.  However, it is more frequent, easier and usually cheaper to invest in gold based funds (shares in mining companies) which can be held in ISAs, are easy to buy and sell.  It is worth noting that the price of gold is quoted in US dollars and therefore an investment can be impacted by currency fluctuations.

If you are considering selling your gold through one of the many outlets currently available, then it is worth knowing that there are huge variations in the prices paid: often varying between 20% and 90% of the current gold value on the market.  There are large advertising costs associated with some of services we see on television and therefore the prices paid reflect their costs.  Many services don't offer a guaranteed price but entice you with high potential values.  There can also be hidden charges for valuation, postage, and sending back your gold.  In some cases, the cost of returning the gold is so high as to make the sale at any price more worthwhile.

Here are some basic tips for anyone thinking of selling their gold:

  • Know what kind of gold you have. Look for a hallmark on the jewellery (see British Hallmarking Council site) to identify the quality of the gold. Jewellers may have to test the gold if the quality is not clearly shown.
  • Like any other service, it is worth shopping around. You can check the latest prices for gold online. Prices are quoted based on a troy ounce (24 carat pure gold 31.1g). Other carats are discounted proportionately based on the quality e.g. 18 carat is 75% of this price. You should be able to achieve 80% of the current gold value and ideally 90% but the service provider does have costs and needs to make some profit.
  • Ensure you check what other charges are applicable in terms of valuation fees, postage, return costs or any other commissions. If prices are quoted for specific carats then see if these are guaranteed for any period.
  • When you sell your gold for scrap, you lose any retail value there may be in the jewellery itself. If you sell through established jewellers, they may be able to resell your jewellery without scrapping it. This means you could get more for your gold than just the scrap value.
  • Obvious items for scrap will be broken items requiring a high repair cost, single earrings and any out of fashion items with little resale value. Sentimental reasons apart, these items may as well earn you some cash.
  • Check if the service provider is a long established trader and has a bricks and mortar property - a physical presence and identifiable address. Can the service provider be easily contacted by phone ?

Author: Tony Birdsall - Antony James Jewellers, Kingston-upon-Thames, Surrey

 

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