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Should I invest in gold and silver jewelry?

Some people who may not be as aware of gold’s nature as sound money, nonetheless invest in it in the form of jewelry, which tends to be much more expensive relative to bullion. When it comes to preserving one’s wealth, nothing beats buying investment-grade bullion bars and coins.

Published: 19-03-2013 00:00

Should I invest in gold and silver jewelry?

Awareness as jewelry

Many may not be aware of the qualities of gold and silver that make them ideal for storing value: rarity, durability, and divisibility no matter in what quantity. But most people, particularly women, would be familiar with the value of pieces of jewelry, and can appreciate gold and silver in their utility as a component of necklaces, rings, bracelets and other adornments.

A question to be asked is: What is the difference between investing in bullion bars and coins, and investing in jewelry?

Difference between investment-grade bullion and jewelry

For one thing, jewelry is lower in actual precious metals content. To make something wearable, there is a need for hardness not provided by pure gold or silver. Even with bullion, coins and bars are at most .9999 gold or silver, which allows for sufficient hardness. But jewelry requires the addition of components other than gold and silver, hence the system of measuring by carats.

Second, there is a larger premium on account of demand for an item as jewelry. However, this larger premium in buying jewelry does not guarantee that one can sell at such a premium at a later date. During crises, in particular, demand for jewelry tends to drop, as does demand for luxury items in general.

Better protection of savings

Gold and silver bullion, on the other hand, would tend to rise in price as people turn to these as more stable forms of money, compared to devaluating currencies. It is monetary demand for precious metals, that gives bullion an edge to jewelry, in terms of being an investment.

However, there may be a period when, with markets crashing, people would sell their items that have risen in price in the interim, including gold and silver. This selloff results in a temporary dip. But as the 2008 crisis showed, gold bounces back soon enough, and it is roughly double its price since then. This is in spite of the price correction that has taken place the past 18 months (as of March 2013).

With premiums dropping on jewelry items, an investment in jewelry may result in lower returns than projected, or possibly a loss, as the price of an item would drop closer to its bullion value. Because of this, it is more advantageous to have bought bullion from the very start, instead of jewelry, because of the lower premium on the former. This makes for higher returns, and relatively less volatile prices.

Buy physical

One must make sure to buy the physical precious metals themselves and not just certificates of these, in order to fully protect one's self from the inflation and crises going on around the world.