Slate's Bizbox
recycled: Previously published Slate articles made new.

Should I Sell Grandma's Locket?Why high gold prices don't mean it's time to sell your jewelry.

By Daniel Engber
Posted Tuesday, March 25, 2008, at 7:31 AM ET
Gold jewelry. Click image to expand.

Gold prices have seesawed in the last month, peaking in mid-March at a record high of more than $1,000 per ounce. Even after a mild decline, the value of gold is still more than $200 higher than it was a year ago. In a 2006 Explainer, reprinted below, Daniel Engber detailed why this doesn't mean you should sell off all your jewelry.

Investors 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?

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.

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."

Got a question about today's news? Ask the Explainer.

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

Print This ArticlePRINTDiscuss this in The FrayDISCUSSEmail to a FriendE-MAIL
Share on FacebookPost to MySpace!Share with MixxDigg ThisShare with RedditShare with del.icio.usShare with FurlShare with Ma.gnolia.comShare with SphereShare with Stumble Upon
Daniel Engber is an associate editor at Slate. He can be reached at .
Photograph of gold rings by Justin Sullivan/Getty Images.
Join the Fray: our reader discussion forum
What did you think of this article?
POST A MESSAGE | READ MESSAGES