Gold Bugs, Gold Bears and Melting Down Grandma's Ring

The good news is that gold prices are floating near an all-time high. The bad news is that, when investors rush for the glittering yellow metal, it generally means that they're rushing away from stocks and other commodities. But while gold's high prices spell a dark future for the economy, they may be a literal gold mine for people sitting on unwanted jewelry.

Making Money on Gold

When it comes to investment, gold is a mixed bag. On the bright side, its prices soar in times of economic insecurity, which means it can be a great place to make money when more traditional investments are hitting the skids -- like right now: As long as people are too scared to put their money in stocks and bonds, gold will continue to hold its value and will probably rise.

The trouble is, gold isn't all that useful: It isn't as strong as steel nor as light as aluminum, as conductive as copper nor as durable as platinum. In fact, when gold prices are this high, it is really only useful for making jewelry. Unfortunately, with the economy on the skids, people aren't buying jewelry -- they're selling it. So, as the price of gold rises, it is actually becoming less useful.

But for people with old, unwanted jewelry filling up their drawers, the threatening financial clouds dotting the horizon may have a silver -- or gold -- lining. After all, with prices hovering at an historic high, this may be the best time in history to get rid of unwanted gold.

How Much Is Your Scrap Gold Worth?

Of course, with gold prices going through the roof, it's also a good time to get cheated, and the market is cluttered with companies paying a fraction of actual gold values. As in any selling situation, the key to getting the highest price for scrap gold is finding out how much it is actually worth.

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The first step for figuring out the value of a piece of jewelry is determining the current market value of a gold pennyweight, which is the standard measurement for jewelry. NASDAQ's commodities price list is a good resource, as it constantly updates the price for a troy ounce of pure 24-carat gold. There are 20 pennyweight to an ounce, so -- for example -- if gold was going for $1,890 per troy ounce, the scrap price of a pennyweight of 24k gold would be $94.50.

Most of the time, jewelry is made out of 10-karat or 14-karat gold, so it's necessary to adjust the scrap price accordingly. For example, 10k is 41.67% gold, so multiplying the 24k pennyweight price by .4167 will yield its pennyweight price. Similarly, 14k is 58.3% gold, so multiplying the 24k pennyweight price by .583 will yield the 14k gold pennyweight price. Using the earlier example, if 24k gold was worth $94.50 per pennyweight, 10k would be worth $39.38 and 14k would be worth $55.09. Since many gold dealers post their pennyweight price for 10k, 14k and 24k gold, these numbers make it much easier to figure out how good an offer is.

Determining the market value of a piece of gold jewelry is easy: It is simply weight (in pennyweights) multiplied by price. As an example, a standard men's wedding ring might weigh roughly three pennyweight. Using our gold pricing example, if it was made out of 14k gold, it would be worth somewhere around $165.27.

Convenience Isn't Always Best

Gold buyers rarely offer the full scrap value of a piece of jewelry, but by doing a little work, sellers can vastly increase the amount of money that they can take home. Generally speaking, the more convenient a gold-selling method is, the less money it pays out. This is certainly the case with Cash4Gold, the best-known mail-away gold purchasers. On the surface, the process couldn't be simpler: customers mail their gold jewelry to Cash4Gold, which mails them back a check. Unfortunately, the checks are often for a fraction of the face value. In fact, in a recent investigation, the company offered a mere 18% of the actual value of the gold they were sent. In the case of our 14k man's wedding ring -- valued at $165.27 -- that would be just $29.74!

That isn't to say that all mail-in gold companies are as questionable as Cash4Gold; the same investigation found that sellyourgold.com offered roughly 90% of the full value of the gold jewelry it was sent. But while the payouts from gold companies may vary greatly, it's clear from the collection of scandals, legal inquiries and complaints to the Better Business Bureau that the ease of mail-in gold sales often comes with a high price.

Getting the Best Price

Despite their sometimes-shady reputation, pawn shops can be a great alternative for gold sellers hoping to get the best price for their jewelry. Often, respectable pawnbrokers openly display the price that they offer for 10k, 14k and 24k gold, which can clear up a lot of confusion. For that matter, if a pawn shop is interested in reselling a piece of jewelry, it may be willing to pay more than just the scrap gold price. Chances are that the payout will still be less than the jewelry's full value, but sellers who get bids from three or more pawn shops can often get great deals.

Generally speaking, online auctions are the most profitable method for selling jewelry. To begin with, companies like eBay (EBAY) can put sellers in contact with a wide variety of potential buyers, many of whom might be willing to pay more than scrap value for an interestingly-designed piece of jewelry. Beyond that, online auctions allow sellers to take advantage of the difference between wholesale and retail pricing. In short, pawn shop owners buy jewelry at wholesale prices with an eye toward making a profit through resale. Auction bidders, on the other hand, are used to paying full retail, so they are often willing to pay a price that lands somewhere between retail and wholesale. For them, the final price might be a big discount from retail, while the seller will make much more than the wholesale value.

Ultimately, though, even today's high gold prices pale beside sentimental value and -- while the recent jump in gold prices has multiplied the value of old jewelry -- selling old baubles is only profitable if you won't regret it. In other words, if you're planning on selling grandma's wedding ring, make sure the money you get is worth the heirloom you're sacrificing.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.