ChristianPF discussed how badly some mail-order cash-for-gold places pay.  The linked showed proof of a wide range of payments, ranging from peanuts to tiny peanuts.  While a pawn shop would pay $50 for a particular amount of gold chain, the three mail-order cash-for-gold companies paid $37.67, $11.50, and $5.70.

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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Short answer:  Probably less than you think, but more than you’ll get from a gold-to-cash place.

Pinyo over at Moolanomy asked whether Cash4Gold.com is a scam or not.  Cash4Gold.com, and places like it, will pay you for your jewelry based (mainly) on its precious metal content.  You ask them for a postage-paid envelope, you mail in your valuables, and a few days later you get a check and ride off into the sunset.

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 dearly for the convenience of selling your jewelry by throwing it in an envelope.

There are flags with this kind of service anyway.  You don’t get any indication of how much they’ll pay you until you open up the check.  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 jewerly 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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I was introduced to this video after reading about it on Gary North’s site.  It’s a short documentary on what  a village in Zimbabwe is doing as its currency thrashes in hyperinflation.  Merchants have stopped accepting the Zimbabwe dollars and will accept only gold.

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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As I was surfing around some other money blogs I ran across an investor who just bought some silver.  He weighed a 10-ounce silver bar and found that "strangely" it weighed 10.9 ounces.

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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