Tuesday, January 26, 2010

Cash for Gold Scams: Exploiting Desperation and Ignorance

With the price of gold soaring, while the economy falters, selling little-used gold jewelry has become an attractive means for raising extra cash. In early December of 2009, gold hit a peak of over $1200 per troy ounce, about 3 times the just over $400 per troy ounce it sold for 5 years earlier. As a result the melt value of gold necklaces, rings, and bracelets, has become a valuable asset for many jewelry owners.

That fact has also been noticed by gold dealers, who do a brisk business these days buying up unwanted jewelry in order to extract, and resell the gold content. Commercial TV, and the Internet are awash with ads offering cash for gold. Unfortunately, many of these "cash for gold" operations are scamming their customers. It is easy to fool people, because many jewelry owners have no idea how to estimate the worth of what they own.

The Today Show on Friday January 22, reported that heavily advertised online sites, such as Cash4Gold.com, only pay between 11% to 29% of the value of the gold. The reporter interviewed Ben Popken from the consumer watchdog site consumerist.com that did a study on Internet cash-for-gold offers. According to Popken a pawnshop would pay far more for your gold jewelry than many of these Internet sites. You can see a video of the Today Show report and interview with Ben.

The advice is to always get more than one offer for any gold jewelry that you sell. But, it is actually not that hard to appraise your own gold, and determine if an offer is reasonable or not. I've even created a Web calculator to assist in doing your own appraisal. All you need is a kitchen or postal scale that determines weights in ounces (oz). Place your gold chain on the scale to determine the weight.

Next you need to know the purity, which is expressed in carats. If you have the original packaging, the purity is usually on the label. The most common gold alloy used in jewelry is 14 carat (although 10 carat and 18 carat are also widely used). Pure gold is 24 carat, which means that a 14-carat chain has (14/24) or 0.58333 gold content.

The spot price of gold varies by the day. Updates can be found at many financial and precious metal Websites, such as goldline.com. Today the price is about $1100 per troy ounce. A troy ounce is slightly more than a postal, or food ounce, it is 1.09714 ounce to be exact. That means an ounce measured on a postal scale is (1/1.09714) or 0.91146071 troy ounce.

Those are all the numbers you need to appraise the gold content of your jewelry. Suppose your 14-carat gold chain tips your food scale at 1.5 ounce. You own (14/24) x 1.5, or 0.875 ounce of gold. That is 0.875 x 0.91146071, or 0.7975 troy ounce. The dollar value today would be $1100 x 0.7975, or $877.

Obviously no dealer will offer you that much for your gold chain. The dealer needs to cover costs of overhead, purifying the gold, and reselling it. The dealer will not be in business without a markup. But, if you are offered $250 for the chain, an amount that might seem like a lot, you are getting ripped off. The dealer's services are not worth that much of a difference between the spot price and the offer. A local pawnshop might offer 75% of the value, or $658.

If you want to estimate the value of your gold, get out your food scale and use this calculator.

3 comments:

rupinder said...

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Cash for Gold

Anonymous said...

I hear a lot about these scam and so a buddy of mine refer me to a company under Simply Gold.ca. What I can tell you is that they followed me all the way through the process by emails giving very good customer service and had very good money at the end. I previously had 3 estimates, 2 at jewelry stores and 1 at a pawn shop and got way more with these guys! I think there not the type who will spend time on the phone wasting your time but more paying fair from the start. Check it out. www.SimplyGold.ca

Regards!

ahnn said...

When there is money involved, there are always people that trying to trick you to get your money. These scams are nothing new. You just need to be extra careful.

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