Why Gold Jewellery is Not an Investment
Listen to the marketing from the jewellery industry, and the idea that gold is an investment for the future will be repeatedly mentioned to help sell the product. This concept has been religiously…
Listen to the marketing from the jewellery industry, and the idea that gold is an investment for the future will be repeatedly mentioned to help sell the product. This concept has been religiously passed done one generation to the next as if gold functions as a money growing asset that every stock portfolio should have a piece of in their mix. In reality, while gold has appreciated in value over time, it is not an investment per se, definitely not in jewellery form. Gold is a property that does change value over time, and that value could go up or down, depending on what the demand is for gold content. These two concepts are regularly mixed up with gold, no thanks to the marketing from the jewellery industry, and thousands of people buy gold jewellery with the expectation that they will be able to sell it in the future with an appreciable gain and profit, similar to company stock or a home.
A True Investment by Definition
An investment by definition involves depositing money or value with another with the promise that, if things go well, the money will be returned on a call with a bonus, a profit, in the form of interest. While the value of the money or asset itself could go up, this is not the profit of the investment per se, it is gain that is different. The two are driven by non-identical drivers. While the gain (or loss) is changed by the market perception of the value of the share invested in, the interested is determined by a contractual relationship. People often lump both together and call them profit because of tax reporting rules, which do combine both amounts as reportable and taxable profit. However, in terms of gold, they are not synonymous. Gold does not gain interest or guarantee profit for holding it for a certain period of time. There is no “staking” profit in gold like one could have with a given cryptocurrency. Gold is, at the end of the day, a commodity that goes up and down in value based on how much people as a whole in a market want that resource or not. They may very well have different reasons for ownership, and many do hold onto gold to preserve the value of their money in a form that is not otherwise connected to the mainstream economy and drivers of supply and demand consumption.
So Why Are People Calling Gold Jewellery an “Investment?”
Much of the problem has to do with unregulated marketing. While marketing usually can’t advertise something that is not true, as this would be flat out lying to consumers. They can quite easily and often do confuse facts. It is a fact that gold has generally risen in value over the last few decades. It is a fact that gold is considered a valuable commodity internationally and is accepted for value regardless of where one happens to be. It is a fact that more gold increase one’s value, which can be exchanged for money, food, services, goods and other property. However, it is not true that holding gold will automatically return an investment value in the future. It is also not true that gold will remain at a high value and continue to increase over time. That part often gets left out of marketing associated with gold jewellery. No surprise, people buy gold jewellery at retail pricing, which well above the actual value of the gold itself, and then they expect when they sell the same jewellery in a decade or so, it will be worth twice as much. Usually, they end up wrong.How Gold Jewellery Value Changes When Owned
Gold jewellery value often behaves like a new car. As soon as the product is taken off the dealer’s hands, it drops 40 percent of its resale value or something similar. In reality, the jewellery was never worth that high figure it sold for at retail. That was simply markup and profit that went into a jewellery dealer’s pocket, thank you very much. Instead, the now-purchased jewellery is only worth what it can be recycled for. That figure’s calculation starts with the spot price of gold adjusted by the quality of gold used in the jewellery piece and the amount of gold involved. When combined with quality-level and content, the final figure is then adjusted further down so that the recycler/buyer can make a profit and stay in business. So, it’s frequently the case unsuspecting consumers end up being shocked twice. First, the value of the jewellery after owning is a big drop from what they paid, and secondly, the jewellery’s resale value is under the current spot price of gold as well. Now, the above doesn’t mean every piece of gold jewellery is only worth a buck after the product is sold. In fact, over time, it’s quite possible a jewellery piece can increase in value considerably. A gold ring bought in the 1980s when gold was on average between $300-500 USD per Troy ounce, is today commanding a value per ounce based on gold at $1,850 per ounce, adjusted for weight and quality. However, the ring may still not be worth what was paid if it sold for $2,000 USD when first bought. This story repeats itself all the time with gold jewellery, which is why buying jewellery for the primary purpose of investment is a horrible idea.
