Golden opportunity for those looking to turn jewelry into cash

Got an old gold chain or class ring that you haven't worn in years?

The price of gold today might make you consider parting with those keepsakes.

Gold closed Friday at $1,347 an ounce, after peaking during trading Thursday at a record $1,366.

The price should give plenty of incentive for people holding on to unwanted jewelry to consider selling it, said Jon Walp, general manager of Long Jewelers, which buys precious metals and stones in addition to peddling jewelry at three stores in Virginia Beach and Chesapeake.

"Everybody's got stuff in their drawers that no one's using," he said. "Even if you don't need the money, it's sitting there. Why not sell it? Put it to some use."

Some jewelry might be resold. Scrap gold gets reformulated into grains for the jewelry industry or bars for investors.

But gold sellers need to understand what they have.

Gold jewelry isn't pure gold. Of the total weight of an 18-karat ring, 75 percent is gold. A 14-karat piece is about 58 percent gold.

Gold is typically mixed with nickel, palladium, copper or silver.

One ounce of gold is equal to 31.1 grams. If an 18-karat ring weighs 31.1 grams, it has three-quarters of an ounce of gold. For gold priced at exactly $1,300 an ounce, the "melt value" of the ring is $975.

Most gold buyers, even the most generous, won't pay that full amount, said Jon Nadler, senior analyst for Kitco Bullion Dealers Montreal, a division of Kitco Inc., which trades gold and other precious metals and offers gold-refining services.

Cash-for-gold storefronts and television advertisers that offer to buy gold could pay as little as 20 to 40 percent of the melt value, he said.

Nadler advises consumers to hold out for at least 60 percent of the melt value in a trade, and closer to 85 or 90 percent is golden.

It might cost 5 to 10 percent of the melt value to remove any stones, cut the metal, separate the gold, put it into a furnace and extract other metals, Nadler said. If other companies are involved, each will take a cut of the value.

Jeff Craddock, owner of Greenbrier Pawn in Chesapeake, sells the gold he buys to a company that gathers large quantities of scrap before selling to another company that collects even larger quantities, which ultimately go to a refiner, he said. The number of layers has increased along with the price of gold, he said.

At Greenbrier Pawn, a seller can get about 75 to 85 percent of the melt value for gold coin bullion, Craddock said.

With jewelry, the percentage depends upon the item, he said. A herringbone chain, for example, carries more weight from the soldering, so he'd offer a lower rate to account for that.

Long Jewelers pays 70 to 75 percent of melt value, Walp said. The retailer keeps 10 to 15 percent, and the rest goes to "middlemen," he said.

In Virginia, any dealer who buys gold or other precious metals must have a permit. The permit costs $200 and requires the dealer to provide personal information and fingerprints, list a permanent place of business where the buying takes place, post a $10,000 bond, and keep detailed and extensive records of each item purchased for two years.

Businesses that buy gold in Virginia take some risk because, under state law, they must hold precious metals and other jewelry for 10 days before they can melt it or sell it to a customer or another dealer. The waiting period applies in case the goods are stolen, giving the victim time to report the theft and law enforcement a chance to recover the items.

If dealers have to turn over a stolen item, they lose the money paid to sellers. Or, if the price of gold drops within the 10-day waiting period, they've lost the melt value on which they based their payment for the item.

Gold prices typically rise as the value of the dollar falls. The most recent run-up, according to economists and analysts, resulted from speculation that the Federal Reserve would take steps to revive the economy and cause devaluation of the dollar.

Gold was allowed to be traded as a commodity starting in 1975, when it was valued around $200, Nadler said. The financial crisis of the late 1970s and early 1980s caused the market price of gold to more than quadruple to $845, he said.

Then, as the economy stabilized, gold settled into the $300 to $450 range and bottomed out at about $250 in 2001, Nadler said.

In 2004, it became easier to invest in gold by buying it like stock through exchange-traded funds. Gold and other metals were securitized - packaged and sold as a commodity. Since then, hedge funds have grown increasingly interested in gold and have driven the wild upswing in prices, Nadler said.

"Because there's no proper way to value gold, there's no real limit," only what people are willing to pay, Nadler said.

By 2006, traders sent gold up towards $700 a ounce.

Local jewelers and pawn shops first saw a surge of people looking to sell their gold when the economy slowed, in 2008, as gold prices flowed even higher.

Even though the value has climbed since then, many consumers who had old rings, chains and coins in their drawers already have traded them in.

"A lot of the excess that was in the market has already been taken out," said Craddock, recalling that his shop took in piles of metal even before the financial crisis in the fall of 2008, when gold was worth between $800 and $900 an ounce. "You saw a dramatic increase, and that was a few years back."

Walp agreed that the recent surge in the price of gold hasn't brought sellers into his stores.

"It seems to me that many of them have already done their selling," he said.

Over the past year, Walp has heard gold sellers talk of excessive medical bills, lost jobs or missed mortgage payments that sent them scraping for cash.

"Those we've seen much more of in the past year than we used to see," he said. "It used to be all divorces."

Carolyn Shapiro, (757) 446-2270, carolyn.shapiro@pilotonline.com