From gold teeth to gold chains: Why the spike in this precious metal means you should probably check your home insurance
By Megan Harwood-Baynes, cost of living specialist
Gold prices have hit record highs in recent months – and if you think that doesn’t impact you, you’re probably wrong.
The spike could have significant consequences for your home insurance (more on that later in the article), and it has also led to many Britons turning to their jewellery box to make extra cash.
Or, if you are one customer at Prestige Pawn, turning to your mouth.
“At one of our stores last week, we had a guy bring in a load of gold teeth,” James Constantinou, CEO, tells Money. The teeth ended up being valued at just over £300.
James entered the pawnbroking industry in 2008 and now buys and lends against high-end items, including gold, wine, watches, and helicopters. The company serves everyone “from multimillionaires to the average Joe”, he says.
One customer, he says, brought in a gold chain he was going to throw in the bin, thinking it was costume jewellery – but instead ended up walking out with £3,500.
The price of gold has skyrocketed in the last year. In the last six months alone (as of last week), prices had gone up 19.9%, meaning an ounce of gold was worth £400 more.
In real terms, a 66-gram 9ct gold bracelet would be worth £1,850 today, whereas in 2022 it was £1,150 – an increase of 60% in just a few years.
“It’s quite phenomenal,” James says.
With high street banks offering annual returns of a maximum of 7%, you can see why people turn to gold, a tangible commodity, during tumultuous times and why it is known as a “safe haven”.
He says: “If you’ve got bailiffs at your door, or you’re about to have your electricity cut off, the numbers you can achieve with a little bit of scrap gold that’s been sitting in your top drawer…
“Maybe it has been there for 20 years, or maybe it’s been handed down.”
But not everyone can make a mint, with some customers bringing in items they think are gold, only for an X-ray to reveal they have been scammed.
“One customer thought he had about 30 grams of gold, but it all had a steel core. He was horrified,” James says. Some scammers, he says, are even able to remove the asset mark, which indicates purity and authenticity, and put it on fake items.
“They go to amazing lengths to try and fool us,” James says, warning everyone to be careful where – and who – they buy their gold from.
Buying, selling and pawning
With gold worth more than before, it’s unsurprising that gold purchases by Suttons and Robertson pawnbrokers have increased by 105% in the last eight months, compared with the eight months prior.
Gold (bullion, jewellery, coins and scrap) represents 64% of their total loan book by volume and 27% of their total loan book by value.
But there is a middle ground, says Jim Tannahill, their managing director, and that is pawning.
“In simple terms, it’s just a loan backed by an asset,” he says. “The contract is six months, and we offer a loan-to-value of up to 75% of what the gold is worth.”
For many people, he says, it is a short-term solution to a cash flow issue, saying around 90% of people pay back their money, returning the item to their ownership.
And for those looking to sell, most might not even know the value of the “little pile of gold in their jewellery box”.
But his advice is to weigh the gold before you take it to a jeweller and then look online to calculate what might be a good price based on the weight.
“A shop is going to give you 10-15% less than that; they do need to keep the lights on, but it will give you a yardstick,” he says, warning people to be wary of sending their items off to online purchasers without any form of insurance.
The hidden limits on your home insurance
But what does this mean for the average person? We are not talking someone who is stockpiling gold bars under their bed (which this week I learned you can buy at Costco), but someone who may have some gold jewellery (either new or inherited) in their home.
When you take out your home insurance policy, you will have a figure that covers your overall contents, but there are some hidden limits you should look for.
“You have a limit for each valuable item you own, and that’s the single article limit,” says Angela Pilley, home insurance expert at Defaqto.
Their data shows 65% of all home insurance products have a single item limit between £1,500 and £2,500.
A single item limit is the most an insurance provider will pay out on your contents insurance for any one item that’s damaged or stolen. So, if you have five gold rings, each worth £1,000 and three get stolen, with a single item limit of £1,500, you would be reimbursed £3,000.
What consumers need to be aware of, she says, is whether they have bought an item and the value has increased above the single-item limit. That doesn’t mean your home insurance won’t necessarily cover it, but it does mean you need to disclose it.
Before you disclose it, you will need to get the item valued, the details of which you then pass on to your insurer. They’ll then store it on file, so if something happens, you can get reimbursed the right amount.
But Angela says: “This is something you’ve got to be wary of and maintain, because it won’t necessarily be index-linked to increase in line with inflation. And your insurance will typically require a fairly recent valuation.”
So, if you’ve got an expensive gold bracelet that’s worth more than the single item limit on your insurance, you’ll need to get it re-valued every few years, just to make sure your insurance has an up-to-date price.
*All figures accurate as of 9 May