I received a question in a comment on one of my more popular posts that describes how to figure out how much gold jewelry is worth. Here's the question:
What is the dollar worth of an 18″, 14-karat, 14.38 gram weight gold chain? No formulas please.
Before working out the answer, it's important first to discuss the sentence that follows her question.
She doesn't want me to giver her formulas. She just wants an answer to her question. Customers in general are more than welcome to ask for whatever they want. I don't fault her for just wanting an answer. I don't even assume that she is intellectually lazy for just wanting an answer.
Therein lies the time-vs.-money tradeoff of obtaining a valuation
If I were a pawn shop owner and she brought it in to me to see what she could get for it, I'd probably look at the chain for the purity marking, put it on a balance, check the spot price of gold, whip out my calculator, figure out what the gold content was worth … and offer her $100. If she accepted the offer — if she had walked in expecting that it was worth about $50, she might jump at $100 — then I'd buy it, and sell it to a melter for at least three times that. But first, I'd try to sell it for $500.
She might find a cash-for-gold place on the web, and send it there. They may have a calculator on line that accepts the numbers she gave me, and spits out an answer right there. She might get a pretty good deal, or she might not. If she just takes their word for it, how will she know? She won't. She'll know only if she took the time to try to answer the question herself.
But whether she goes that far depends on how much money is at stake. She wouldn't go into the same depth of analysis to sell a used coffee maker that she bought a year ago. If she could sell it for $3 instead of $2, she's already invested too much time worrying about it for it to matter.
The main point of all of this is that if you don't understand how a valuation is calculated, you're doing the deal in a position of weakness rather than strength. The cost of this can be great or small, and itself is a tradeoff of money vs. time.
OK, great. Just tell me what the darn chain is worth.
The gold content of this chain is worth about $430. Here's the math. The fractional purity of 14-karat gold is 14/24 = 0.5833. For a 14.38-gram chain, this means 14.38 times 0.5833 = 8.4 grams of gold. (The length of the chain doesn't factor in.) One troy ounce of gold is worth about $1,600 now. There are 31.1 grams in a troy ounce, so this translates to $51.44 per gram of gold. Multiply this by 8.4 grams to get $432 and change.
There's the answer. Now you can enter deals from a position of strength. And hopefully the reasoning was clear.
Great points about knowing the true value before trying to negotiate! Knowing the formula is the best way to arm yourself with info before dealing.
Cool post! I’ve always wondered how that stuff was figured.