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What makes jewelry a good investment?

June 8, 2012: 5:05 AM ET

They say gold, silver, or diamond jewelry is a good investment because its value will appreciate over time. But how can that be true if you can only sell jewelry to stores or pawnshops for a very bargain price?
-- Lala, Astoria, Ore.

Much like a spiffy new car driven off a dealer's lot, most new jewelry purchases significantly depreciate as soon as you walk out of the store, says independent jewelry appraiser Mark Cartwright of Fayetteville, Ark. It's the rare bauble that gains in price over time like a good investment.

The pieces that do tend to be very high-end with exceptional gemstones (like a large, high-quality diamond in an unusual color) are antiques that show fine craftsmanship. Limited-edition pieces created by well-known designers like Cartier and Harry Winston can also significantly appreciate in value, as can pieces with a legendary history, such as the Flintstone-sized jewelry given to the late Elizabeth Taylor by her great love Richard Burton. Even in these scenarios, however, only someone who really knows the industry will be able to recognize what may be a good investment, says Cos Altobelli, appraisals chair for the American Gem Society.

Your standard pretty piece from your local jeweler, meanwhile, may increase in sentimental value but it's unlikely to have a significant increase in monetary value, says Rahul Kadakia, head of jewelry for the auction house Christie's. That's partly due to the mark-up on jewelry when it's sold -- which varies widely by seller -- as well as the glut of inventory that most jewelers already have. Customer demand is also weak for many types of used jewelry. Many would-be grooms, for example, fear their beloved may not appreciate an engagement ring that's been previously worn.

And while the prices of some metals have soared in recent years -- gold recently traded at roughly $1,550 an ounce, up about 140% from five years ago -- selling your jewelry for scrap metal is likely to be disappointing. Prices are based in part on the jewelry's weight, how much gold is in it (a 14-karat gold bracelet, for example, is 58% gold), and the buyer's (often substantial) cut. Sellers can get anywhere from 85% to 10% of the so-called "melt value." In other words, while commodity prices may be up, that doesn't mean you'll earn a hefty profit by selling.

Bottom line? Buy jewelry you love to wear and leave the investing to more conventional means, like your employer's 401(k) plan. And remember, even fashion jewelry could one day become a priceless family heirloom when passed on to a young daughter or niece.

-- Stephanie AuWerter

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