[Guest Post] Why Jewelry Is a Good Gift but a Poor Investment
As a first for InvestingNugget, I'd like to showcase a guest post by ValueChampion. While this blog is mainly focused on equity investments, it falls under the broader umbrella of personal financial choices. The post will talk about jewellery as a form of investment, with the content being a reflection of the guest writer's research and opinion. My closing comments at the end of the post.
Is investing in Jewelry a fallacy? See why even though your jewelry is made out of gold, it isn't the same as investing in gold.
STEPHEN LEE, SENIOR RESEARCH ANALYST - JUNE 10, 2021
Purchasing gold jewelry is a long-standing tradition in Singapore. We show them off, buy them as gifts, and pass them on to our children. However, you shouldn’t mistake the bling as sound investments. Although precious metals like gold and silver are often great investments, retail stores will sell the precious metal at a significant markup once made into jewelry. This markup can often cost you between 60%-250% more than the precious metals and gemstones are worth at that time.
Taxes
The unfortunate truth to the engagement ring you just received or the necklace you just bought for your significant other is that the resale value will be significantly lower than the original price tag. There are several reasons, but jewelry comes with a 7% goods and services tax (GST) in Singapore. On the other hand, to promote Singapore as a trading hub for precious metals, the Singapore government removed taxes on investment-grade precious metals like gold and silver.
The Markup
Traditionally, jewelers will mark up the wholesale price of the materials by 100%. However, more often than not, you can find jewelers charging 2 to 3 times more than the wholesale price of gold and diamonds. This means gold worth S$2,500 can be worth upwards of S$7,500 if made into jewelry.
Average retail prices vs value in weight in gold
The markup can be very profitable for jewelers and retailers. However, for the rest of us, this makes purchasing jewelry an expense rather than an investment. In fact, the resale value on jewelry almost immediately drops the moment you purchase the item.
The Difficulty of Selling Your Jewelry
An important factor in purchasing an investment is the liquidity of the asset. How easy is it to sell? When it comes to traditional stocks and bonds, they are bought and sold every day. The liquidity makes it easier to determine the valuation of the investment and turn a profit promptly. Similarly, gold bullions and paper gold (gold in the form of ETFs) are also bought and sold every day in easily accessible marketplaces.
Reselling your jewelry, on the other hand, is difficult. Not only are most pieces uniquely different, but the valuation of any given piece can vary widely. You may have one potential buyer willing to pay 50% of the original price and another buyer only willing to pay for what the piece is worth once melted down. Either way, you will likely not make back the original cost of the piece, making it a poor investment.
Jewelry Often Does Not Fluctuate in Value
Unless there is something particularly rare or historically unique about your piece of jewelry, the appraisal value of a piece of jewelry will not change much over time. Investment guides will tell generally tell you to find value by purchasing low and selling high. The price of Jewelry is relatively constant. That is, the value of a piece or appraisal of it does not change much over time. Let’s assume you purchase a 24k gold ring that is roughly 6 grams of gold. At present, the gold in the ring is worth about S$480, but a jeweler’s markup makes the price of the ring roughly S$29,000. Even if you purchased the ring at a discount, it’s likely still sitting at a significant markup of the original cost of materials.
Suppose you chose to purchase 6 ounces of gold for S$14,952. Gold and silver change prices every day. You might be able to sell it at a higher price several years later. Or say, prices for gold drop by 10% in the next few months, you might consider investing in gold while the price is lower. Not only that, but once you decide to sell, you will find it very easy to find a willing buyer.
Sentimental Value
Buying gold jewelry in Singapore and will continue to be an essential part of the culture. There is often more to a piece of jewelry than just its weight in gold. The sentimental value we put on individual pieces of jewelry is often priceless. Your parent’s wedding rings or the engagement ring your fiancé just gave will always be worth more to you than what someone else is willing to pay for it. Unfortunately, the resale value of your jewelry does not include sentimental value. Sentimental value makes jewelry an excellent gift or keepsake but often a poor investment.
_______________________________
I have a very similar take on this topic. Many investors could be drawn to luxury items as a form of investment, as these items enjoy high public exposure. Just by walking through a mall, you're likely to see shops with shiny watches and jewellery showcased in pristine glass enclosures.
While it's possible to make a profit by "flipping" luxury items such as watches, it is not for everyone. It takes time, effort and knowledge to identify luxury assets that can appreciate in value, as the prices are often marked up due to workmanship, brand names, appearances on top of the actual material costs.
Cheers,
InvestingNugget
About ValueChampion
"As a Personal Finance Research Firm, our mission is to provide clarity on all of life's financial decisions. We create guides and tools based on both quantitative and qualitative analysis to make it easy to pay off debt, choose the best financial products and services (credit cards, loans, insurance policies and investment platforms) and tackle major life goals, like buying a house and saving for retirement. "
