Why jewellery is a good gift but a poor investment

Purchasing gold jewellery 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 mark-up once made into jewellery. This mark-up can often cost you between 60 per cent to 250 per cent more than the precious metals and gemstones are worth at that time.

Here's why jewellery aren't good investments.

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 jewellery comes with a nine per cent 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 mark-up

Traditionally, jewellers will mark up the wholesale price of the materials by 100 per cent. However, more often than not, you can find jewellers charging two to three 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 jewellery.

Gold's average retail prices vs value in weight

The mark-up can be very profitable for jewellers and retailers. However, for the rest of us, this makes purchasing jewellery an expense rather than an investment. In fact, the resale value on jewellery almost immediately drops the moment you purchase the item!

Difficulty of selling your jewellery

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 jewellery, 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 per cent 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.

Jewellery often does not fluctuate in value

Unless there is something particularly rare or historically unique about your piece of jewellery, the appraisal value of a piece of jewellery 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 jewellery 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 jeweller's mark-up 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 mark-up 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 per cent 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 jewellery in Singapore and will continue to be an essential part of the culture. There is often more to a piece of jewellery than just its weight in gold. The sentimental value we put on individual pieces of jewellery is often priceless.

Your parent's wedding rings or the engagement ring your fiance 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 jewellery does not include sentimental value. Sentimental value makes jewellery an excellent gift or keepsake but often a poor investment.

ALSO READ: Is the best men's luxury watch to invest in… a women's watch?

This article was first published in ValueChampion.