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How Gold is Valued

How Gold is Valued

18kt yellow gold multi circle ladies chain necklace

18kt yellow gold multi circle ladies chain necklace

The value of gold has been out of the news for a while, with the days of reaching $1,600/ounce and $1,700/ounce a bit of history now. That has made many think that the days of gold being extremely valuable are now over and on the way down. That’s a bit of a reactionary positions, but given the way the markets have behaved in the last few years, everything seems like a risky bubble now. The above said, some context is still important to have.

A Short Gold Pricing History

The fact is, over the last twenty years, gold still remains at some of the highest valuation levels seen in modern investing. Just in the last ten years, gold has risen from the levels of $400/ounce to its highs of $1,850/ounce and now to its current levels of $1,380/ounce. The difference in these figures is tremendous. Just mathematically, the current level represents a growth rate of 345 percent, a far better profit and gain than anything the regular stock market has put forward in most cases. So for anyone thinking that gold has lost its moment and is dwindling down to its former depths, think again. In fact, just in the last year, gold’s spot price, the valuation for one pure ounce of the metal, has gone from a low of under $1,200/ounce back up to just under $1,400/ounce.

Reasons for the Value Level

Part of the continuing valuation control gold seems to retain is due to nature of the metal. Its value is entirely at the whims of society. Gold doesn’t produce anything. It’s not a company that manufactures anything, and it doesn’t pay out a dividend to shareholders. Gold doesn’t create any new assets either. Yet it still retains value that is entirely disconnected from any government currency. Because of this fact, gold provides investors a potential hedge against anything that is linked to country currencies. That can be both good and bad.

When a currency like the U.S. dollar goes down, having gold can be a very good thing. It allows an investor to retain wealth and value that would otherwise be lost. On the other hand, when the inverse relationship works the other way, the an investor who has wealth locked up in gold realizes a loss and has to wait and hope the value of the precious metal will go back up.

Other Value Factors in Play

From a jewelry resale value, gold is a common and frequent metal used, as most people know. That said, not every piece of gold retains the same spot value as a full troy ounce of fine gold. Gold is actually a very soft metal. As a result, it can be bent and malformed easily under very little pressure. To make gold jewelry more durable and lasting, it is mixed with other metals. As a result, jewelry can run in different carats of gold. 24 carat is the softest, finest gold version aside from being .9999 pure. Below this level are other, stronger mixes such as 20 karat, 15 karat, 12 karat, and 10 karat. The lower the number, the more other metals are mixed in and the stronger of an alloy. However, there is a price to making stronger gold, and that means that the value goes down. As more of an alloy is created, the price of the gold involved goes down. So a 12 carat ring will be worth a lot less than 24 carat ring, all things being equal in weight, size and shape.

There is additional value that can be placed on gold jewelry above its gold spot price in some cases. This valuation figure depends on the design of jewelry, its collect-ability, rarity of the workmanship involved, and market demand. Much depends on who actually created the jewelry and if that designer is famous. Those pieces that qualify will develop their own pricing above the base level value simply due to name association of the original designer.

Caveats to Remember When Selling

One thing to keep in mind, however, is that a reseller rarely receives the same value of a jewelry piece based on appraisal. This is because an appraisal measures a gold piece at what it is fully worth in the current market, including spot price and collectability. Most buyers will want to buy a piece discounted so there is room for them to make a profit afterwards in another sale. Few will buy gold except at the spot price when it is certain that the amount of gold is accurate and confirmed. This is usually the case with government-issued gold coins that have a stated value.

Of course, if a jewelry or gold seller has owned a gold piece or coin long enough, the climb in spot price value alone may have exceeded the original value of the piece when first bought. In this case, the owner may still sell the piece for less than it is fully worth but may still make a significant profit at a practical level of dollars out and dollars back in when sold.


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