Columnists Bob Carroll The Best Policy: The allure of gold

The Best Policy: The allure of gold

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The risks of buying used jewelry (a.k.a. “scrap gold”)

“Cash for Gold!”  Not very long ago you would only see a banner like this associated with a pawn business.  Today jewelry stores across the spectrum from high to low end have found gold-buying to be both a service to their customers and a lucrative alternative when retail sales are slow.

To the customer, it’s jewelry they no longer need or want though some of it still carries memories – of high school days, of former friends or even spouses, of relatives no longer living (so treat it with respect) - but its destiny is the jeweler’s torch or the refiner’s oven.  And from time to time, jewelers who buy gold from the public may find themselves holding a fairly large quantity of the precious metal.

Question to deal with later:  Is scrap metal, inventory?

Also it should come as no surprise that crooks have taken note of the high and increasing values related to gold and certain other metals, and as might be expected, there is no end to enterprise when it comes to crime.  The 1980s taught us that as the price of gold rises, so rises the rate of jewelry crime.

Frauds & Scams

In this year alone, the Jewelers Security Alliance (the crime-fighting organization of our industry) has received literally dozens of reports from jewelers across the country who have fallen victim to criminal activities involving the buying of gold.  The JSA recently sent a report to its members describing one of these events:

Two men presented a retail jeweler an item of yellow and white gold which was stamped 18 karat.  The jeweler subjected the item to several acid tests – each time getting a positive result for 18 karat.  For further assurance, the jeweler scratched for a deeper sample and it still indicated 18 karat.

Only after the customers left and the jeweler put the item to torch did he determine that it was not solid gold, but just a very deep overlay.  The jeweler’s check had immediately been cashed at a bank nearby.

This account is just one of several that were reported by jewelers in the same state, same suspects, same M.O.

The JSA states that there are primarily two types of fraud that are prevalent at this time:  heavy plating as in the example above, and switch.  In a switch, the customer may present one item which is genuine and then at some point switch the item for another – such as by putting the item into a bag and then taking it back out again (“it” then being the fake item).

As gold-buying often attracts individuals who are not previously known to the jeweler, jewelers are advised to use extra caution and be wise to thieves’ tactics.

Shipping it

Jewelers have several options when it comes to shipping scrap gold, the two primary choices being a private commercial shipping company, or the United States Postal Service.  Insurers generally regard the USPS as being a secure method for shipping jewelry and gold – provided the package is sent either Registered or Express Mail (not standard or Priority); and at least one insurer offers a substantial limit of free insurance coverage for such USPS shipments, at zero deductible.

Registered mail shipments are charged by the value of the package - $14.45 for a package valued at $1,000, and the scale increases in increments of $1.35/$1,000.  Be aware that Post Office insurance coverage ceases at $25,000 although the charge for postage and handling continues up the scale of value, all the way to $15 million.  Express Mail shipments are charged by weight and zone, ranging from $15 - $25.15 for one pound, which often makes Express the cheaper alternative for moderate range shipments.

Also, as a business incentive, some refiners offer to pay for shipments to them and will provide customers access to their shipping accounts.

Records are always the key to collecting in the event of a loss.  Maintain a detailed log of all shipments with accurate information on the contents, by description, weight, or both – as well as when, how, and to whom.  Many insurers also recommend double-boxing jewelry-related packages, and not using tip-off words like jewelry, jewelers, gold, gems, refinery, etc., on the packaging or label.

Robberies, Burglaries,

and Insurance

Thieves are now beginning to target gold-buying jewelers, realizing that much of what they get will be untraceable and easy to sell quickly.  It is also important to note that burglary is fast assuming a greater proportion of the various forms of crime against the jewelry industry.  Every week begets new reports of jewelers’ alarm systems being compromised and safes being successfully attacked.  (There’s a current rash in Texas.)

A jeweler who has only a general business insurance policy (“contents and liability”) will find that there is no more crime coverage for scrap gold than there is for inventory for sale, customers’ property, or memo goods (extremely limited to a very small amount such as $1,000).

The only effective way to cover items of gold or other precious metals or gemstones, whether finished jewelry or scrap metal, is to have a form of Jewelers Block – the insurance staple of the jewelry industry.  Jewelers Block insurance specifically addresses the needs of the jewelry industry and does provide coverage for jewelers’ inventories of precious metals and gemstones.

So back to an earlier question: Is scrap gold, inventory?

And the answer is, “it depends.” Scrap gold is inventory if the jeweler shows it in his inventory records and it forms a portion of what is reported to the insurer as “total inventory.”  If the jeweler has not included scrap material in his or her inventory records, then the insurer will likely not be able to include it for coverage if there is a loss.

If a jeweler does include scrap metal as a part of the inventory report, then the coverage would apply to not only the material that was on hand on the date of inventory (which will probably have already been sent away) but also to material that was subsequently purchased.

The value to be paid in the event of a loss may be the amount that the jeweler initially paid for the goods, the jeweler’s selling (refinery) price, or the current market price on the day of the loss.  The difference depends on the insurer and prior agreements which may be made with the insurer.

Jewelers Mutual, for instance, states that if the jeweler reports under a category for scrap goods the “highest daily amount” on hand during the previous 12 months, they will pay up to the current market price in the event of loss.  (JM insureds may wish to discuss this provision with their agents.)

Possible side issue regarding purchasing from the public

Many states and communities have anti-fencing laws in place which add certain responsibilities to the buying of used jewelry and precious metals, or prohibit the practice entirely.  Such laws may define holding periods and the type of information that must be taken from sellers of used jewelry.   Before buying from the public, be certain you are aware of and comply with your local legal obligations.

Bob Carroll is a Certified Insurance Counselor who has specialize in insurance and risk management for the jewelry industry for almost 30 years.  Robert G. Carroll and Associates represents Jewelers Mutual and other quality carriers in Arkansas, Oklahoma, Mississippi, and Tennessee.  “Jewelers are not just what we do, they are all we do.”  Contact:  This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

 
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