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Consumers see golden opportunity to cash in

April 24th 2009

The precious metal is viewed as a money spinner because its has outperformed global stock markets, writes CIARA O'BRIEN

CASH-STRAPPED consumers are turning to their jewellery boxes to raise some much needed funds, selling off unwanted and scrap gold.

It’s not hard to see why consumers are viewing gold as somewhat of a money spinner. The price of the precious metal has only changed marginally compared to last year, but it has outperformed the global stock markets.

The market for scrap gold has increased dramatically in the past few months according to people in the industry, as jewellers actively seek out the precious metal. Auction site eBay has several listings for scrap metal, with one listing quoting a “Buy it now” price of £250 (€280) for 32g.

Jeweller Martin Gear, who owns a manufacturing jewellers in Dorset Street, Dublin, said he has noticed a considerable rise in the market for scrap gold.

“There’s a big increase in the last few months with people getting gold out of their own homes and selling it for scrap. They’ve realised, because it’s constantly in the news, that gold is worth so much now,” he said. “

I sold off a lot of my own stock, out of date stuff, to international bullion dealers and got credit on my new gold account. There was stuff that had gone out of fashion, that was on the tail end of fashion. I sold it at a profit, even selling it for scrap.”

Typically, jewellers would take a commission of about 10 to 15 per cent, Gear said, and sell it on to bullion dealers, who melt it down. Value is determined by weight. “

There has been a huge increase in gold scrap supply in recent months because consumers all over the world who have bought jewellery in recent years as a luxury item, maybe for a loved one, are now realising that, while it is lovely, you wear it only once or twice a year. Why not sell it and raise a bit of much needed cash,” said executive director of Gold Investments Mark O’Byrne. “

It’s interesting from a supply/demand view. A huge injection of supply has come on to the market in the last year and yet the price of gold has remained very robust.”

It appears that there is definitely money to be made in the scrap gold market. However, the final price will be determined by a number of factors, including the quality of the gold.

Gear explains that, in Ireland and the UK, the standard is 9 carat, which he says is viewed as poor. Those who travel and have bought gold abroad in areas such as the Far East, Turkey and New York, would have items with higher content, of 14 carat and upwards.

However, consumers who want to make a sound investment should probably look elsewhere for their gold investment. Buying gold from a jeweller is not the same as investing in the precious metal on the commodities markets. Jewellers’ prices include a mark up that reflects the amount of work that has gone into creating a piece.

“You’re not buying physical bullion, you’re buying a piece of metal that has been crafted, a lot of workmanship goes into it. For that reason, you pay a premium of as much as 300 or 400 per cent over the live market value of the gold,” says O’Byrne.

But for those who do want to put some money into gold, O’Byrne says a general rule is that gold should make up about 10 per cent of an investment portfolio.

With the volatility that has been witnessed on stock markets in recent months, consumers are viewing gold as a safe haven. “The old Wall Street adage is that you put 10 per cent of your portfolio in gold and you hope that it does not work. That sounds counter-intuitive. Gold has an inverse correlation to most other asset classes so if gold is going up, it generally means that property markets and stock markets are performing poorly, people are looking for a safe haven asset.

“There is an argument to say that, because of the amount of systemic risk in the world – the amount of issues with large banks and large corporations – you could possibly have as much as 20 per cent of your portfolio in gold.”

That, however, is a position that others would consider overexposed.

“We think it’s essential that everyone has a small allocation of gold because if you don’t, you’re very exposed. It means you have all your eggs in the property basket, the equity baskets, the deposits baskets,” says O’Byrne. “It’s important to spread it around. It’s such a cliche to talk about diversification, but unfortunately we talk about it more than we put it into practice.”

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