Is the Scrap Gold Business Legit?

If you have been tempted to turn scrap gold into cash over the Internet, don't.

The cash for "scrap," or "junk," gold industry took a huge step in trying to upgrade its image, with one company moving beyond the typical late-night TV commercials to a coveted Super Bowl advertisement (seen in the image above). Even with the higher profile, selling scrap gold over the Internet is still something you should avoid.

The concept is straightforward. Chances are you have mismatched, damaged or otherwise unneeded gold jewelry you have kept around even though you'll never use it. With gold prices hovering around $900 an ounce, even that scrap gold is worth some money and a number of Internet businesses have cropped up to buy it.

Here's how it works: You send scrap gold to the company, and you receive a check with a money-back guarantee that says if you are not satisfied with the price, you get your gold back. At first glance, it appears to be a fair deal, but there are a few issues you need to be aware of.

How they price the gold is unknown: Gold is weighed in pennyweight, with one pennyweight equaling about 1.555 grams. You are unlikely to find the pennyweight price that the scrap-gold company offers for 10-karat and 24-karat gold on its Web site. This makes it impossible for you to estimate your gold's value and, basically, the company can make up any number it wants when making the offer.

Quick-cash ripoff: You may not be concerned that the company doesn't list the price because it offers a money-back guarantee. While this is true when the company cuts a check for the scrap gold, the guarantee is usually waived if you opt for getting the payment quickly though direct deposit, the method it promotes heavily.

Insurance for your package is not enough: To get your money, you need to send the scrap gold to the company. The company will provide you with a convenient mailing envelope, which is insured. The fine print most likely will say it is only insured for a small sum (about $100). With gold at about $900 an ounce, even a small amount of scrap gold will surpass this limit. Worse, anyone looking to steal something knows exactly what's inside the envelope, and that it has a monetary value, making it a likely target.

Your gold's worth is purposely undervalued: Most of these outfits greatly undervalue the gold that has been sent to them. They know there is a certain percentage of people who will opt for the quick-cash option. Undervaluing the gold in the first place means more profit for the company.

Even if you do raise a dispute, the company probably won't lose your business. You will find that it will quickly offer a lot more for the same pieces, sometimes double or triple the price, that was originally offered. Even at triple the offer, the company is still making money, so you can imagine how much it makes off those who don't complain.