GemNews

Appraisal Values, Updates and the Strong Dollar

Posted by Anne Neumann - 26/08/08 at 07:08:07 am

We have all been taught at our Mother’s knee that prices for consumer goods and services always go up.  It is one of the basic tenents of consumerism.  The problem with that of course is that in many cases it is simply not true.  TV’s, computers, cell phones, flights to the Caribbean, houses in US subdivisions all are much cheaper now than in times past.  Some of the reasons are technological, some of the reasons are over-supply and some of the reasons are market-driven.  The same is true of jewellery.

All the components from which jewellery is made such as gold, diamonds, platinum, and gemstones are bought and sold in US funds.  In the early part of this decade the Canadian dollar was very weak relative to the US.  Do you remember paying $1.60 Canadian to get $1.00 US?  How much does it cost now: par, subpar, $1.06?  There is a big difference.

This exchange rate differential has a profound effect on the US goods and goods priced in US funds that we buy.  Have you been to Chapters for a novel lately?  They are charging less than the US price for most books. The same is true of jewellery prices.  The prices of most gem-set items have fallen sharply because the component prices have come down because the stronger Canadian dollar can buy more than it once did. Items made primarily of precious metals are the exception to this because of the commodity price run-up as the American economy weakens.

A second factor in the downward pressure in the cost of jewellery items is the long-sought repealing of the jewellery excise tax in 2006 which was introduced as a temporary tax during the First World War.  This tax was applied at the wholesale level and the reapeal of it has lowered the cost of jewellery as well.

What does all this mean to an appraiser or an appraisal customer?   An appraisal of an item of jewellery for purposes of insurance reflects the estimated cost to replace the item on the date of the appraisal in the geographical area where the appraisal is prepared.  The appraisal of a recently acquired item reflects the new costs of replacement.  An up-date of previous appraisals reflects the CURRENT cost of replacement.  A value from 2001 or 2002 reflects the cost to replace then, NOT NOW.  The state of the market, the cost of the dollar, the repeal of the tax have all had a tremendous effect on the cost of jewellery.  These factors are taken into account when appraisals are updated.

For an example: an item of jewellery, appraised in 2001 when the US dollar cost 1.60 Canadian and when the excise tax was in force, was valued at $10,000.00.  The same item, priced today at par, is valued at $6,300.00.  To look at it another way. An item priced at $5,000.00US in 2001 would be $8,800.00 Canadian.  Today, at par, a $5,000.00US item is $5,000.00 Canadian.

That’s the effect of currency.  What does it really mean to you?  Well, if you are paying insurance premiums on 2001 or 2002 values, you are paying too much.  An update is clearly in order.

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