The Case Against Jewellery and Diamonds As Investments

Jan. 13, 2009 - PRLog -- Experts however have been critical of these claims. They warn that it is irresponsible to encourage investors to buy jewellery as an investment and may result in the loss of hard-earned savings.

Mark O’Byrne, executive director of Gold and Silver Investments, the international bullion dealer, whose company offers investments in gold and silver bullion, said, “Jewellery and diamonds attract VAT at very high levels. Before being fashioned into bracelets and necklaces, investment grade gold bullion (0.9999 or 24 carat) coins, bars and government gold certificates are stamp duty and VAT free. Jewellery is not. This is an added cost on top of an already large mark-up.  Typically, 9 carat, 14 carat and 22 carat rings, bracelets and necklaces have mark ups of hundreds of percent over the real value of its component precious metals.”

A very large necklace containing 1 ounce of pure gold (0.9999 pure or 24 carat) will normally cost well in excess of 250% of the actual market price for gold. If gold is trading at £560/oz, this means the necklace will likely cost at least £2,000/oz plus the VAT. A gold bar which also has 1 ounce of pure gold (0.9999 pure or 24 carat) will be sold at the trading price plus a small mark up of around 5% or £588 (£560/oz+5%=£588) and no VAT.
While these considerations start at purchase, there are also draw backs when it comes to selling the jewellery bought as an investment. Unfortunately for the vendor, re-sale jewellery would not normally realise more than 30% of its original cost price. In fact, most jewellers do not consider buying back items they have sold, forcing the owner to seek a new buyer in pawnshops or online at sites such as Ebay.

This massive instant depreciation is not seen in asset markets including the gold market itself. A gold certificate, bullion coins or gold bars can be bought at 2% to 6% over the live market gold price. Days or years later, the same gold certificate can be sold automatically to a bullion broker or government mint at almost 100% of the market value. This can take place at around 1% below the actual market price or slightly above the market price.

Mr O’Byrne added, “This means that the spread between the buy and the sell price for investment grade gold bullion is marginal. In comparison, the spread between the buy and sell price for rare stones or jewellery is very high making a positive return on investment extremely unlikely.”

Unlike diamonds and jewellery, gold bullion coins, bars and certificates can also be placed in a pension fund. There is no local or international jewellery or diamond market place where goods can be traded on a daily basis on an exchange. This lack of an efficient market or price discovery mechanism makes the price of jewellery and rare stones subjective and subject to the whims of individual jewellers and valuers.

International experts don’t recognise jewellery or gemstones as investments exactly because they are not correlated with equity markets.  Lisa Hubbard, executive director of International Jewellery at Sotheby’s  notes that " Diamonds tend to go up and down with the value of the stock market.“

Unlike, jewellery and rare stones, investment grade gold bullion (0.9999 pure) displays and inverse correlation to property and equity markets.  
Jewellery and rare stones are not investments. Some quality jewellery pieces and top quality very rare stones may retain their value in the event of a continuing and deep recession however the vast majority of jewellery pieces and rare stones will fall in value.
In the current financial and economic climate there are very few safe havens.  Gold bullion remains one. In recent years, central bank gold sales and leasing of gold have artificially suppressed market prices. As financial institutions and central banks become more concerned about financial, economic and systemic contagion, this source of supply is set to dwindle. Already, many South American, Middle Eastern, Asian and Russian central banks have already stated their intentions to add to their gold reserves.

The German Bundesbank recently explained how they view gold as an essential monetary asset. The Bundesbank is the world's second-largest holder of gold after the US Federal Reserve, and has sold just 20 tonnes out of total reserves of over 3,000 tonnes in the past five years.

"National gold reserves have a confidence and stability-building function for the single currency in a monetary union," the Bundesbank said.

Financial and political uncertainty make their gold reserves more important than ever before.

As ever real wealth diversification and diversification in pension funds is absolutely essential to all investors and best of breed equities, property, commodities, government bonds, cash and gold bullion should be included in all investors portfolios in order to protect ourselves in 2009.

About Gold and Silver Investments
Gold and Silver Investments are a financial services company specialising in wealth preservation strategies. They provide asset diversification services to investors, companies and institutions in the EU and internationally.
Gold and Silver Investments offer their clientele a variety of investment options and asset classes. These include precious metals, pension products (equity, property, bond and cash funds) and deposit products.

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Editor’s Note: Gold and Silver Investments are represented by search engine optimisation agency, Top Position. Please direct all press queries to Tina Clough. Email: tina@topposition.co.uk or call: 01623 726233. Mark O’Byrne, Executive Director of Gold and Silver Investments, Ph 0203 0869200, www.goldassets.co.uk