What is the dollar worth of an 18″, 14-karat, 14.38 gram weight gold chain?  No formulas please.

Before working out the answer, it’s important first to discuss the sentence that follows her question.

She doesn’t want me to giver her formulas.  She just wants an answer to her question.  Customers in general are more than welcome to ask for whatever they want.  I don’t fault her for just wanting an answer.  I don’t even assume that she is intellectually lazy for just wanting an answer.

Therein lies the time-vs.-money tradeoff of obtaining a valuation

If I were a pawn shop owner and she brought it in to me to see what she could get for it, I’d probably look at the chain for the purity marking, put it on a balance, check the spot price of gold, whip out my calculator, figure out what the gold content was worth … and offer her $100.  If she accepted the offer — if she had walked in expecting that it was worth about $50, she might jump at $100 — then I’d buy it, and sell it to a melter for at least three times that.  But first, I’d try to sell it for $500.

She might find a cash-for-gold place on the web, and send it there.  They may have a calculator on line that accepts the numbers she gave me, and spits out an answer right there.  She might get a pretty good deal, or she might not.  If she just takes their word for it, how will she know?  She won’t.  She’ll know only if she took the time to try to answer the question herself.

But whether she goes that far depends on how much money is at stake.  She wouldn’t go into the same depth of analysis to sell a used coffee maker that she bought a year ago.  If she could sell it for $3 instead of $2, she’s already invested too much time worrying about it for it to matter.

The main point of all of this is that if you don’t understand how a valuation is calculated, you’re doing the deal in a position of weakness rather than strength.  The cost of this can be great or small, and itself is a tradeoff of money vs. time.

OK, great.  Just tell me what the darn chain is worth.

The gold content of this chain is worth about $430.  Here’s the math.  The fractional purity of 14-karat gold is 14/24 = 0.5833.  For a 14.38-gram chain, this means 14.38 times 0.5833 = 8.4 grams of gold.  (The length of the chain doesn’t factor in.)  One troy ounce of gold is worth about $1,600 now.  There are 31.1 grams in a troy ounce, so this translates to $51.44 per gram of gold.  Multiply this by 8.4 grams to get $432 and change.

There’s the answer.  Now you can enter deals from a position of strength.  And hopefully the reasoning was clear.

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• Request an envelope.
• Drop your gold jewelry in the envelope and mail it to them.
• They send you a check.

Easy peasy, right? It is. The catch is that some of these places really give you almost nothing compared to what your gold jewelry is worth.  Of ten sites listed on one comparison site, the top one paid almost eight times the bottom one for the same gold necklace.  The top site, ExpressGoldCash.com, currently pays $26.43 for 14kt gold, per pennyweight.  (This is the payout for the lowest quantity tier, which is zero to five ounces.  If you send in more than that, they pay more per DWT.)

The real question is this, though:  How does it compare to gold spot price?  One pennyweight of 14kt gold is about 0.02917 troy ounces, so ExpressGoldCash is paying out just north of $900 per troy ounce.  Spot price is $1,626 per ounce, so they’re paying out more than half of spot for the gold.

All in all, that’s pretty darn good, considering what they have to do to recoup their purchase.  They have to handle the business costs of shipping the goods, paying you, and insuring your jewelry in transit.  Then they have to test your item to see that the purity is as advertised.  Then they have to melt the stuff and get it into a form that can be sold (usually a three-nines bar).

Here’s another reason I know it’s a good price.  They advertise what they pay prominently on their site.  They know they pay out a lot for the gold, so it’s a selling point.  As I went down the list on the comparison site I visited, the top three listed their current payouts.  (On the third one a little more digging was necessary to get the price, but it was there.)  The other sites did not advertise their prices.  The sites that pay out less don’t want you to know how little they pay out until they have your items in hand.

So the takeaway is if you’re going to use a cash for gold place on the web, then make sure at least that they advertise what they will pay you right on the site.  You shouldn’t be finding out at the time you get your check.

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But my friend has an interest in getting some gold.  (Or at least that’s the impression I got from him.)

How to maneuver out of being goldless

My friend cringed when I said that gold was now around $1,800/ounce.  So there’s a mental block to buying now.  What’s more, there’s a mental barrier to buying regardless of which way it goes.  If it goes higher, then it will seem foolish to buy: “If I’m not supposed to buy high, then I’m definitely not supposed to buy as it’s moving even higher.”  If it goes lower, it won’t go low enough:  “Just $50 lower and I’ll buy.  It’s been that low before.”

As with any investment, once the financial barriers are gone — that is, you have enough money to buy if you want to — the only other barriers are mental.  If left up, these barriers are paralyzing.  Gary North has talked about a solution to break through the paralysis.

Before I talk about this, I assume that you want to buy gold, but are hesitating to pull the trigger.  This isn’t meant to convince you to buy gold if you don’t want to.  It’s up to you to evaluate whether you’re at that point or not.

Here the trick.  Whatever the current spot price of gold is (basically its melt value) commit to buy some when it either goes up $50 per ounce, or goes down $50 ounce.  It will do one or the other at some point.  When it does, pull the trigger.

Once you have some gold in hand, you’ll be glad you have it regardless of whether it went up or down.  Here’s how.  If it went up, then you’re no longer regretting not owning any, and you’ll be glad you have some when it goes higher.  (If it doesn’t ever go higher again after you buy it, then you can come back to scold me.  I don’t expect to be scolded much.)  If it goes lower, then you not only have the gold, but you also got it for $50/ounce less than when you made the commitment.

It’s a win either way.  Happy golding if you’re on the fence!

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How much is 15.4 grams of gold filled worth to a gold and silver place?

Here’s what I can tell you.

A gold and silver place will likely give you less than melt value for your chain. If they’re not going to resell your chain as-is, they may melt it themselves, or sell it to a scrapper for somewhere around melt value.

What is melt value for your chain, then? The value of your gold jewelry depends on what kind of marking is on the chain. “Gold filled” means “gold, filled with some other base metal.” If the marking has a fraction, as in “1/20 14k”, then you can be guaranteed that the weight of the gold in the chain is at least that fraction. If it’s simply “14kgf” then there’s no guarantee as to how much gold is in there. It could be 5%, or it could be more or less.

Let’s assume that it’s at least 5% gold. Then the gold content is 0.05 times 15.4 grams, or 0.77 grams. This is 0.025 troy ounces. Now, with gold crossing $1,400 per troy ounce recently, this would put the value of the gold in your chain at 0.025 times $1,400, or $35.

A place that accepts gold (say, a pawn shop), again, will give you less than $35 for the chain, since they need to make a profit on the transaction. A mail-in gold place will give you far less.

So, the good news is that it’s worth something (hopefully), and gold is near an all-time high now. The bad news is that you might be able to get only a couple of pizzas with the money. In either case, there you go.

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Is 14k Italian gold different in price than gold in the USA?

The answer depends on which gold price we’re talking about.

On the one hand, there is the retail price of the gold jewelry.  This is what you’d pay at a jewelry store, secondhand store, or pawn shop.  I’m by no means an expert on Italian-made gold jewelry, but from what I gather on the internet it’s of good quality.  Given exactly the same type of chain, same weight, and same gold content, but one is Italian-made and the other is made elsewhere, it’s not unreasonable to see a difference in price based solely on the workmanship of the jewelry.  A well-made chain, or one that has a reputation for being well-made, should command a premium over a lesser-quality chain.

On the other hand, there is the scrap price of the gold jewelry, which is the price a melter will pay.  Chains, bracelets, rings, etc., are thrown into a fire, melted, poured, and cast into a bar mold.  At this point, all of the workmanship is melted away.  Nothing remains of what the items were.  It’s just gold, refined to some purity.  To a melter, a 20-gram, 14-karat solid gold Italian chain is worth exactly the same as a 20-gram, 14-karat solid gold chain from somewhere else.  A gold atom from a fine Italian gold chain is no more rare than a gold atom from a knockoff.  They’re all the same atoms, and can’t be told apart.

By the way, it’s usually better to try to sell a gold chain you own directly to someone who wants it as a gold chain — especially to someone who knows what it would cost to buy it elsewhere.  Selling a gold chain to a Ca$h4UrGold place is easy, but you won’t get near the value you could for the chain.  Selling to a pawn shop may be a little better, but even this varies from shop to shop.  If you have an Italian gold chain, it’s best to sell it to someone who’s looking for an Italian gold chain.  (Or give it as a gift to someone who will appreciate it.)

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But even beyond that, it’s hard to tell whether some of the companies are careless, incompetent, or outright fraudulent in how they identify the items they’re sent.

Watch the video and see if you can find what I’m talking about.

Did you catch it?

I’ll cut to the chase:  Go to 0:36 in the video and here’s what’s said:

“We recently did a test with one eighteen-karat gold chain.”

Now fast forward to 1:33.  They show the payment information from GoldKit.com.  It says:

Gold 14k $5.70

GoldKit.com identified the chain as 14-karat, but it was actually 18-karat, according to Stacy Johnson, the reporter doing the piece.  GoldKit.com didn’t identify the purity of the gold correctly.

For a moment, let’s give GoldKit.com the benefit of the doubt, and say that they weren’t able to identify the purity of the gold chain because they got the center piece of the chain, and there was no gold purity mark on the chain.  If you were in their shoes, would you (a) guess at the purity, or (b) return it to the customer, saying that you can’t value it reliably?

One more reason to avoid these places, I guess.

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Except that some folks were, shall we say, a bit disappointed with the size of that check.  They’re not going to give people top dollar for their stuff because they have to (a) pay for shipping, (b) pay people to value your stuff, (c) pay to cut the check and mail it, and (d) make a profit.  You pay for the convenience of selling your jewelry by throwing it in an envelope.

If you don’t get any indication of how much they’ll pay you until you open up the check, then that’s a red flag.  (Some places do, and the prices are far better.)  But at that point, they have your stuff, and the clock is ticking — or may have already ticked away — for you to contest it.  But people do it, so this encourages them to stay in business.

So, how do you figure out what your jewelry is worth?  First, you look for the stamp on it to see what it’s made of.  Here’s some of what you might find:

• Three numbers. Put a decimal point between the middle and last digit, and you have the purity of the precious metal in percent.   So a gold chain stamped with “375″ would be 37.5% precious metal, or 9 carat gold.  One stamped with “585″ is 58.5%, or 14 carat gold.  “916″ is 22k gold, the standard for many gold coins.  “Pure” gold may be designated “990″ or “999″ if it’s gone through some more refining.
• 10k, 14k … or 18ct, 24ct. Pure gold (99% or higher) is “24 carat.”  So 10 carat gold is 10/24, or 41.7% gold.  14-carat gold is 14/24, or 58.5% gold.  This marking is also called “solid gold” but it does not necessarily mean pure gold — just that it has the same alloy throughout.
• 1/20 14k, or 14kgf. This is “gold filled” which, unfortunately, does not mean “filled with gold” but instead “gold, filled with something else.”  The 1/20 means that the weight of the gold is at least 1/20th, or 5%, of the total weight.  The letters “gf” in the second example indicates that the piece is gold filled, but there is no gold weight requirement.
• GE, HGE.  Stands for “gold electroplate” (at least 7 millionths of an inch) and “heavy gold electroplate” (at least 100 millionths of an inch).

Second, you weigh the jewelry.  If it’s nothing but metal, then the rest is easy.  If there are gems, then it’s a little more complicated.  Let’s take an example.  Say you have a 14k gold chain that with a mass of 30 grams.  (I’m a physicist by training, so “mass” and “weight” aren’t the same thing, but I won’t give you a physics lesson now. )  So the amount of gold you have in that chain is 14/24 times 30 grams, or 17.5 grams.  A 30-gram chain marked “1/20 14K” will have at least 5% of 30 grams, or 1.5 grams, of gold.

Last, you look up the price of gold.  Kitco is a good place.  Today it closed at $938.30 per ounce.  (This is per troy ounce of gold.)  There are 31.1 grams in one troy ounce, for my 14k, 30-gram gold chain, the melt value of the gold in that chain is 17.5 grams / 31.1 grams times $938.30, or $527.98.  The gold filled chain has at least $45.25 worth of gold in it.

These are calculations you can do to see how much someone is lowballing you when they give you a price for your jewelry.  It’s also handy to see what kind of markup people are asking for their jewelry.  I ran across this 14k yellow gold curb chain on Amazon.com and it seems to be a great deal according to the specs.  The total metal weight is advertised as 14.2740 DWT (pennyweight).  There are 20 pennyweight in a troy ounce.  The gold content is then 14/24 times 14.2740/20 troy ounces, or 0.416 troy ounces.  At $938.30 per troy ounce, the melt value is $390.67.  They’re only asking $399.  It’s hard to get bullion coins for this kind of markup these days.

Knowledge is power.  Now you can figure out a little better what that jewelry is really worth to someone buying it off of you.

(Note:  Thanks to Living Almost Large for including this article in the Carnival of Personal Finance!)

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If you view only about 20 seconds into the video, you’ll see the exchange: one loaf of bread for 0.1 grams of gold. So, the villagers pan for gold so that they can eat.  Many can’t.

Is 0.1 grams of gold expensive for a loaf of bread?  In terms of labor, yes: one might need to pan for hours to find this amount of gold.  A whole family might need to pan.

If we step away from Zimbabwe for a second and look at the market pricing of gold in (US) dollars, we see that it’s been trading between $900 and $1,000 per ounce over the past 30 days.  Let’s say that it trades at $933.  (This makes the math easy.  No, really!)  Since there are about 31.1 grams in a troy ounce, 0.1 grams is worth about $3.  This might be a tad on the high side for bread, but not ridiculously high.

The main point: In the absence of a stable currency, gold holds its purchasing power.  We’ve seen this in the US, and we’re seeing it in Zimbabwe.  Cash may be king, but kings can go corrupt.  Gold isn’t corrupted by anything, and it answers to nobody.  It has value independent of any decree or proclamation by its physical scarcity.

That’s why people with bread to sell in Zimbabwe accept gold.

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His scale is fairly accurate — probably better than a tenth ounce.  What he actually measured was the weight of the silver bar in avoirdupois ounces — what Americans would call "ounces" — instead of troy ounces.  The conversion is

10.9714286 avoirdupois ounces = 10 troy ounces.

The avoirdupois system, as one might suspect from the name, originated in France.  The word comes from avoir de pois, meaning "goods by weight."  It was adopted by the British and later by the United States.  The Troy system is also French, named after the commune of Troyes, France.  This system of measure is used for black powder, gemstones, and precious metals.

The connection between the two systems is the grain.  There are 7,000 grains in an avoirdupois pound, which is 16 avoirdupois ounces (oz).  There are 5,760 grains in a troy pound, which is 12 troy ounces (ozt).  So

1 ozt = 5,760 x 16 / (7,000 x 12) oz = 1.09714286 oz.

In terms of grams, 1 ozt = 31.1034768 grams.

This distinction is important, because silver (as well as gold, platinum, and palladium) prices are quoted per troy ounce.  It’s possible that someone might pay too much for silver if regular ounces were used instead of troy ounces.  Even worse, if an item was an alloy of silver but was treated as pure silver, the person would pay that much more.  (Pre-1965 US dimes, quarters, and half-dollars are 90% silver.  Sterling silver is 92.5% silver.)

This investor looks like he’s enjoying his silver, and this is why it looked like he got an extra couple of ounces of silver for his money.  Wouldn’t that have been nice?

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