One of the most common questions I get asked in a pawn shop is “How do pawn shops price gold?”
It’s actually very easy to answer.
Since gold and silver are priced on an international level, by their weight, a pawn shop goes by the same standard.
They determine this by putting your jewelry on a scale and seeing how much it weighs.
Typically speaking, pawn shops will deal in one of two measurements.
Grams or pennyweights.
There is no real difference between grams and pennyweights for all intensive purposes.
A pennyweight is just 1.55 grams, so converting from grams to pennyweights for vice versa is very easy to do should you happen to be comparison shopping between various pawn shops or gold buyers.
Now, keep in mind, if your jewelry has any stones in it, they will have to subtract the weight of the stones from the total weight of the item to determine how much gold there actually is.
Obviously, if you have a big piece of “Anything” in a ring that’s not gold, they can’t pay you for the weight of whatever that non-gold material is as if it had the same value of gold.
Makes sense, right?
The Purity Of The Gold
The next thing that a pawn shop will take into consideration is the purity of the metal.
This is sometimes known as the “Karat” or the metal if we are talking about gold. When gold jewelry is made, it’s very rare for it to be 100% gold because of how soft gold is.
For jewelry to be durable enough for regular wear, they have to make a gold alloy, which means that they mix the gold with other metals to make it harder.
However, what they ends up doing is meaning that less of the total weight of the item is actually gold.
The purity of the gold commonly found in jewelry is:
- 10 Karat – 41% (or .41 when put into an equation.)
- 14 Karat – 57.5% (or .575 when put into an equation.)
- 18 Karat – 75% (or .75 when put into an equation.)
The higher the karat number of your jewelry, the more gold that is in it, and the more that it is worth.
Karat markings are normally just estimations of purity. There are exact measurements as well and these are known as”Plumb” measurements, which means precise.
Normally “Plumb” gold is marked with a P after the karat mark.
So one ring might be “14K” and another might be “14KP.”
The 14K ring is approximately 57% gold, but the alloy wasn’t done precisely, so it’s just an estimation.
The 14KP ring was made from a tightly controlled and mixed alloy and is exactly 57.5% gold.
How These Numbers Work Together To Determine The Value Of The Gold
Once a pawn shop knows how much an item weighs (minus stone weight) and what purity the metal is, they can determine a value of the metal.
The calculation if the pawn shop prices items per gram is:
[Current marketing price of gold/silver] / 31.3 * [Purity of metal] * the weight of your item = melt value.
An Example Of The Calculation
So, if the current market price of gold is $1,100 and your item is 14 karat and weight 5 grams, here’s how this looks.
1100 / 31.3 * .575 * 5 = $101.03
What This Number Means To Pawn Shops
So your item could be melted today for $101. But does that mean the pawn shop will pay you $101 for it? Probably not.
Why? Well, because like any business, pawn shops exist to make money. After all, how could they afford to pay you for anything if they never made a profit on something?
In addition, when you make a loan on an item, a pawn shop has to hold onto it for a specific period of time before they can melt it. In some states, that is 3, 4 and maybe even 6 months!
Well, the price of gold moves every day and in 6 months, it could be worth substantially less. Maybe it’s only $900 per troy ounce by then?
If that was the case, the pawn shop would lose a lot of money on all the loans they made when gold was $1100 per troy ounce.
So, because a pawn shop is both in business to make money and need to protect itself from scenarios where the price of gold may fall while the item is in on loan, they will typically pay roughly 60-70% of gold’s current value when they are making a loan on an item.
The same goes with silver; the only thing that changes is the the market price applied at the front of the equation ($14 versus $1,100 in this scenario) and the purity (often .925 in the case of silver versus .575 or .41 in the case of gold.)