Shop price and pawning

A shop’s board and a pawnbroker’s slip will never match the Central Bank’s reference. The difference is not an error; it is the cost of making jewellery, the margin of the seller, and the deductions of the pawnbroker. This page explains those differences in words, with no numbers, and tells you what to ask before you hand over money or metal.

The making charge

When a jeweller makes a piece of gold, they charge for the work. That charge is called the making charge. It covers the labour of the goldsmith, the loss of metal in filing and polishing, and the shop’s overheads. The making charge is added to the metal value, which is the weight of the piece times the karat price. The total is the shop price.

The making charge is not a fixed percentage. It varies by the complexity of the design, the karat, and the shop. A plain bangle has a low making charge; an intricate necklace has a high one. A buyer should always ask for the making charge to be itemised on the receipt, separate from the metal value.

Wastage on old pieces

When a shop buys back old gold, it does not pay the full metal value. The shop deducts a wastage allowance, which is an estimate of the metal lost when the piece is melted and refined. Old jewellery has dirt, solder, and wear, and the shop cannot recover the full weight as pure gold. The wastage deduction is the shop’s way of accounting for that loss.

The wastage deduction is also a margin for the shop. It is not a scientific measurement; it is a commercial decision. A seller should ask what wastage deduction is being applied before the piece is weighed, and should ask for the weight to be shown on the receipt.

The buy-back deduction

In addition to wastage, a shop or pawnbroker will deduct a buy-back amount from the metal value when buying gold. This is a flat or percentage deduction that covers the shop’s profit and the risk that the gold price may fall before the piece is resold. It is sometimes called a commission or a cut.

The buy-back deduction is not standardised. It varies from shop to shop and from day to day. A seller should ask for the buy-back deduction to be stated separately, and should compare it with other shops before selling. The deduction is the main reason a seller receives less than the reference price for the same weight.

How a pawnbroker values gold

A pawnbroker values gold by weight and karat, but not by the making charge. The making charge is lost when the piece is pawned, because the pawnbroker is only interested in the metal. The pawnbroker weighs the piece, checks the karat, and calculates the metal value using the current price. Then the pawnbroker applies a deduction, and offers a loan that is a percentage of that reduced value.

The loan percentage is also not fixed. It is set by the pawnbroker and may be regulated. The borrower should ask what the loan percentage is, what the interest rate is, and what happens if the loan is not repaid. The pawnbroker’s slip should show all of these, not just the weight.

What a buyer should ask

Before buying gold, a buyer should ask for the itemised receipt. The receipt should show the weight in grams, the karat, the metal value at the day’s price, the making charge, and the total. If the shop will not itemise, the buyer should walk away. The itemised receipt is the only way to know what you are paying for the metal and what you are paying for the work.

The buyer should also ask for the karat stamp on the piece, and should verify it with a testing kit if possible. A piece that is stamped 22 karat but is actually 21 karat is worth less than the buyer thinks. The stamp is a promise, but it is not always true. A reputable shop will allow a test.

What a seller should ask

Before selling gold, a seller should ask for the weight to be shown on the scale, and should ask for the karat to be tested in front of them. The seller should then ask for the metal value to be calculated at the day’s price, and for the wastage and buy-back deductions to be itemised. The seller should compare the final offer with the reference price for the same weight and karat, and should understand that the difference is the shop’s margin.

The seller should also ask if there is any additional charge, such as a melting charge or a service fee. These should be itemised. If the shop refuses to show the deductions, the seller should take the piece elsewhere. The gold market is competitive, and a transparent shop will win the business.