Jewellery Valuations and Insurance
Posted on: 4th April 2011 By Anita

With gold prices hitting record-highs it seems there are people encouraging the public to spend money on jewellery valuations. Having up-to-date records of all your gold and silver jewellery items is very important and understanding how insurance companies work will save you headaches and trouble if the unthinkable happens – your jewellery goes missing!

What’s the value of my Jewellery

First let’s look at the difference between ‘retail value’ and and what we call ‘real value’. As consumers we know (or should be aware) that purchasing any item new from a jewellery shop will contain a large ‘retail’ premium. This is true across almost any item you look at from large screen plasma TVs, new cars, clothes, computers, cellphones and so on. Commonly this is what’s called depreciation – basically the decline in value of ‘assets’. From an economic point of view when we enter into a contract of sale we are effectively accepting that the item will depreciate from the moment payment is made. The amount of loss in value depends on the item and how much over it’s ‘true value’ you bought it for.

What’s depreciation and does it relate to jewellery

Depreciation can also be caused by factors such as wear and tear, outdated technology and consumer demand however for the sake of this article let’s put that aside for the moment and focus on how this relates to buying and selling gold jewellery. There’s various definitions of what can be classed as an asset and the view we subscribe to is that it’s something that puts money INTO your pocket and improves your financial balance sheet. Such as stocks yielding interest payments, real estate that’s generating positive cash flow, long term investments, etc.

What’s an Asset

Assets are tangible or intangible items that produce value and have positive economic value. Paying “retail” for something is never a smart idea and yet we are often driven by emotion and desire (which can have  a negative effect on our personal wealth and well being).

Retail Premiums on Gold Jewellery

Let’s now look at the various price components that make up the cost of new jewellery to help understand where this difference arises from… imagine the effort required to mine only 1 troy ounce of fine gold – it can take over 1 ton in rock to yield this much gold, that’s a ratio of 1:32,150! Not particularly efficient or environmentally-friendly.

Now imagine that unrefined gold doré bullion has to travel some distance perhaps overseas like the Martha Minein New Zealand to the Perth Mint in Australia. That product must be processed and refined taking out all the impurities and separating the gold, silver and precious metals. This process has several steps and uses very toxic and strong chemicals to complete. Next the refined product needs to be turned into materials suitable for the jewellery manufacturing process – this could be in the form of alloy, gold/silver granules, fabricated metal products, castings, plate sheet, solder paste, wire and so on.

Manufacturing overheads

Next the jewellery manufacturing process will take place, which could be done in China, Thailand, Indonesia, or other countries where the human labour costs are low (or in Western nations where costs are higher). Depending on the item being made the finished product will have a variable amount of time required to finish the jewellery. Normally done in bulk, mass-produced runs to reduce the costs such as seasonal designs or product ranges used by high-street jewellers.

The jewellery would then be shipped to a warehouse for distribution to various retail locations across the country and the World. Next items are sent to individual stores for presentation and sale. Of course retail costs can be very high as can well-trained jewellery sales men and women including retail overheads, full time sales staff salaries, commissions and so on.

Gold Prices

If you think about gold prices as the raw-ingredients used in the supply and manufacturing of jewellery and the above mentioned steps as what’s considered “value-add” then it’s not hard to imagine how much above the “gold value” jewellery can be. It’s no uncommon for this to be in excess of 300% above the metal value. Yes, gold and silver could be considered an asset, however that’s given when you bought the gold it was at fair market valuation – i.e. very close to the actual gold spot price. If you’ve bought many years ago you may be lucky in that the gold price has moved up so much that you now have items worth more than you paid for them! This is not guaranteed however – best to make money when you purchase not hope for some potential increase in value.

Jewellery valuations

If you consider for a moment the recent world-wide property bubble that was built on high leverage, easy debt and speculation, then one must be open to considering that banks, promoters of real-estate investment and valuers were partly responsible. Remember the rating agencies that provided AAA+ ratings for all those toxic mortgage-backed-securities? The public believed rating agencies opinions and yet overlooked the shocking fact that rating agencies were paid by the very companies the products were created by – now that’s a serious conflict of interest.

Ethically and in most cases by law, valuers are required to remain objective and impartial providing a genuine service to customers. Yet we’ve heard that if you own real estate it’s quite possible to encourage the property valuers to provide either a higher or lower value depending on your intentions. Now imagine that the same valuer or Real Estate agent was the one looking to purchase your property… hardly objective is it?

The illusion of higher value

In our opinion we must look carefully at who benefits from not just selling jewellery but maintaining the belief that something has more value than it really does. Quite simply something is worth what another person will pay for it. If you have to insure an item to retail or replacement value who benefits? The company providing insurance (the higher the value the larger the premiums), the valuer that needs to provide a new report each year and of course the retail jewellery shop that provides you replacement jewellery at retail prices.

Yes, gold and silver is considered an asset that maintains it’s value (given normal market fluctuations). Jewellery however does not meet our definition of a true asset because of the high retail premiums you pay when purchasing from a shop (especially true when items are brand-new). Be very careful of companies that value jewellery and also purchase it!

For customers looking for a reputable jewellery valuation for insurance replacement purposes, we recommend Gemlab, as they are independent and impartial valuers. www.gemlab.co.nz

For fast cash for your unwanted gold and silver (and excellent rates), please talk with the friendly and professional team at Gold Smart today. goldsmart.co.nz