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Invest in Gold…Buy A Rolex?

February 11th, 2010 Leave a comment Go to comments

Investing in gold has become impersonal.  You don’t even need to buy physical gold anymore (such as coins), an ETF such as GLD offers the ability to own gold without taking possession of it.

Investing in gold has been a hedge against stocks and the dollar for a long time. The same goes for silver (it’s equivalent ETF is: SLV).

Another way to own gold is to buy a signed piece of gold jewelry, such as from Cartier or Tiffany’s. In addition to owning gold, you can enjoy it even more, than say, owning gold coins. I also find this a lot more enticing of an idea than putting more money into a gold investment that you can’t really get a hold of. I don’t see this as a large portfolio addition but as a small part to be used as a diversification method. Not all of my investing money, just some of it.

There aren’t as many choices for men in this area than there are for women. The most acceptable jewelry selection for men is to buy a gold watch, and the most popular in this regard is a Rolex watch. Rolex not only sells gold watches but they have convinced men to buy watches with diamonds as well – most watches for men rarely offer diamonds.

Here’s why a Rolex is a good choice

  • Liquidity – You can buy other fine luxury watches, but Rolex watches have a lot of liquidity – there is a very healthy after market for them.
  • Opportunity for Appreciation – Some models will actually appreciate in value and provide a real rate of return. This is difficult to predict of course and you shouldn’t count on it.
  • Terminal Value – More common models will depreciate to a point – and then no more. A new gold Rolex president sells for about $22,000 (UPDATE: 2011: $28,000) A 25 year old model will sell for $7000-8000 (UPDATE: 2011: $9,000 – $9,500) It is unlikely to depreciate further.
  • It’s a Watch! A good one at that – it doesn’t need a battery.
  • Timeless Design – the classic Rolex’s have not really changed that much and still look great today. Part of the reason why they hold their value is that they maintain a classic look throughout their history.

Which One Should I Buy?

There are many different watches to choose from, some are made of all gold or all platinum, plus models that have some precious metal with stainless steel. Also, they are sometimes offered with precious stones (diamonds, sapphires, rubies and emeralds), usually the woman’s models.

The best choice as an investment is the Men’s Gold Rolex Day-Date (commonly referred to as the President). This watch is very popular and is offered at a lower price than other full gold models in the Rolex lineup. Also, there is an almost 40 year product history with the 18K model. Here’s a quick summary of the different models over the years and how much they sell for in the aftermarket.

Model: 18038, produced 1970s-1980s

Single Quickset

Approximate Value: $9,000-9,500.

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Model: 18238, produced 1990s-2000s

Double Quickset

Approximate Value: $10,000-12,000.

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Model: 118238, produced 2000s-Today.

Double Quickset, 30% heavier.

Approximate Value: $16,000-18,000.

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Exactly How Much Gold is in There?

The scrap value of a Rolex President is much less than the value of it as a watch, even at today’s gold prices. Over time the amount of gold in a President has been increased. Even so, the amount of pure gold in the watch is worth around $2,000 (UPDATE: 2011: $3,700) at today’s price of $900/troy ounce (UPDATE 2011: $1700/troy ounce). This works about to about 2 1/4 or so troy ounces of pure gold in total (the newest model is about 30% heavier, putting the total weight near 3 troy ounces) . The most recent versions (1970s on) use 18K gold, which means that about 25% of the watch is of non-precious materials.

It’s Not A Substitute For Bullion

If you buy a Rolex Gold watch, keep in mind that it’s not a substitute for investing in gold bullion, which are physical gold investments made of nearly 100% gold. There is a considerable markup due to brand equity and the added value of its construction and mechanical functions. This is both a benefit and a non-benefit. The watch won’t trade up as quickly as pure gold does (or down for that matter). But, on the other side, it will likely trade up at a rate near or above inflation giving you a long term consistent store of value. The key to get this benefit is to buy a used watch that has fully depreciated near its terminal value as I mentioned above.

Final Tips

  • The best bang for the buck is to buy a used watch near its terminal value, e.g, a 25 year old President.
  • Buying a used Rolex watch can be trouble some due to authenticity issues. One option is to buy from an established physical retailer.
  • Each watch can be verified with Rolex based upon its original configuration at retail sale – this can be used to determine, e.g., if that diamond bezel was original.
  • Buying a used watch online has obvious dangers – however, you can get great deals here. Buy from the most trustworthy sellers. One example is generalwar on Ebay.