Updated: January 7, 2023
Is it a good idea to invest in jewelry? How about using them as a source of your emergency fund?
Some people think so. Particularly because the value of gold and precious gems can appreciate through the years. So it follows that it is a good investment, right?
Well, that’s not necessarily true.
Jewelry as Investment
Jewelry prices can be quite subjective. And the value of precious metals and gems, such as gold, silver, and diamonds, is incredibly volatile.
In fact, their prices go up and down at a faster pace and greater magnitude than the stock market. This makes it relatively a more risky investment than stocks.
Here’s the 100-year historical US Dollar price of Gold. Notice how there’s no significant trend to the price, or at the very least, it’s just a sideways movement.
And here’s the 100-year historical price of the Dow Jones Industrial Average, which is like the Philippine Stock Exchange Composite Index. While the price fluctuates, it nevertheless shows an upward trend.
Both charts are inflation-adjusted, and thus accurately show how investing in gold is more nerve-wracking and panic-inducing, especially for long-term investors.
Additionally, as I’ve observed from those who like buying jewelry, most of them actually have no plans of selling them for profit, especially when gold prices are up.
If that’s your mindset, then whenever you buy jewelry — you’re simply acquiring an asset and not an investment. Because an investment should make you money.
In fact, the only time they’d consider selling their jewelry is when they really need cash. This brings us to the second reason why people foolishly buy them — as a source of emergency funds.
Jewelry as Emergency Fund
When you need money, you can pawn your pieces of jewelry to get cash. But is that a smart money-move? Apparently not.
Pawnshops will only give you up to 70% of the value of the jewelry as cash. And you need to pay the interest if you want to get it back.
So wouldn’t it be better to just put cash in the bank as your emergency fund? This way, when you need money, you can get 100% value and there are no interest fees to pay.
Furthermore, even if you can find a pawnshop that could give 100% market value, the price of gold fluctuates and your emergency could happen during a price downtrend.
Of course, there’s also the option of selling them.
But there’s a financial emergency and time is of the essence. This means you’ll most likely sell them at a discounted price, that is if you can find a buyer at all, which is another challenge in itself.
In the end, having cold, hard cash saved in the bank or tucked away in a low-risk investment is still the best option for an emergency fund — not jewelry — and similarly, not designer bags, not luxury watches, not antiques, not artwork.
In Summary
There’s nothing wrong with buying jewelry. Go ahead and buy them if you’re fond of wearing them, or as a gift for your loved ones.
But never buy jewelry if your mindset is to have it as an investment or a source of emergency funds. It’s better to just invest your money in paper assets or keep your cash handy in a savings account.
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I am not sure if what I am about to write is true all over the Philippines but in Bulacan on Luzon we have have seen several times where a pawn shop will only loan based on the value of the gold in the item. They will loan NOTHING against the value of the jewels in the article. My guess is that the shop owners do not have staff trained to ascertain if the gems are real and of what quality. Rather than take that risk, they simply do not make loans against the gems, only the gold content. It is not very difficult with a test kit to determine the gold content of an item and an accurate scale will give you the weight. I totally agree that it is not practical to cash flow any gold you own. Unlike and optionable stock or ETF that you can use as an underlying to sell put and call options against, a piece of jewelry can not be easily “rented out” For those who want to own gold but also would like cash flow for it, look at ETFs like GLD or miners like GDX and GDXJ. GLD does not pay a dividend and the miners only pay very small dividends but you can sell puts against them until assigned and then continue selling call options against your holding to generate steady cash flow. Now, you own gold for the bad times but you also earn income while you wait.