What happens at the counter
When you hand over gold at a pawnshop, the clerk does four things. First they look for a hallmark and test the metal, usually with acid on a touchstone, an electronic tester or, in better shops, an XRF analyser. Second, they weigh it, often in grams but sometimes in pennyweight (1 dwt = 1.555 g). Third, they look up their own buy price for that karat, which is updated from the spot price daily or several times a day. Finally, they decide whether the item has resale value as jewelry or is simply scrap.
The melt value baseline
Almost every pawn offer for ordinary jewelry is built on melt value. Melt value = weight in grams × purity × price of one gram of pure gold. If you bring 15 grams of 18k gold, the pure gold content is 15 × 0.75 = 11.25 grams. Multiply by the live 24k price per gram and you have the theoretical maximum the shop could get from a refiner, before refining fees. Work this out in advance with the scrap gold calculator or the per-karat pages such as 18k gold price per gram.
Buy offers versus loan offers
A pawnshop can either buy your gold or lend you money against it. To buy, shops commonly pay 50–80% of melt value. The gap covers their testing, their risk that the price falls before they sell, refining charges of a few percent, rent, staff and profit. Shops that see a lot of gold and sell directly to refiners tend to pay at the higher end.
For a pawn loan, the shop keeps your gold as collateral and lends you a smaller amount, often 30–60% of melt value, because it needs a buffer in case you do not repay and the price falls. You pay interest or a monthly fee and can redeem the item by repaying the loan within the agreed term. If you do not repay, the shop keeps and sells the item. Interest on pawn loans is high compared with bank credit; in many places the monthly fee is several percent, which adds up quickly over a year.
Gold loans in India and the Gulf
In India, gold loans from banks and non-bank lenders are a major industry. The Reserve Bank of India caps the loan-to-value ratio, typically at 75% of the gold's value for most borrowers, and lenders value gold at a reference rate for 22k, adjusting for lower purities. Interest is usually much lower than at a traditional pawnbroker. In the Gulf and Turkey, many jewelers will exchange old gold against new pieces, crediting the melt value minus a small deduction; this can be better value than a cash sale if you planned to buy new jewelry anyway.
When pawnshops pay more than melt
If a piece is branded, antique, or simply attractive and in good condition, the shop may be able to resell it as jewelry for more than its gold value. In that case they may offer above melt, although they will rarely tell you so. Designer pieces from well-known houses, vintage watches and coins with collector value are the most common examples. For these, compare the pawn offer with what specialist dealers or auction houses would pay.
How to get a better pawnshop offer
A few habits reliably improve the result:
- Know your melt value before you go, using today's price, and bring a printout or screenshot.
- Separate items by karat, so a mixed bag is not priced at the lowest grade.
- Ask what price per gram they pay for each karat, not just a lump sum.
- Watch the item being weighed and tested, and check the scale shows zero first.
- Visit two or three shops and a specialist buyer, and compare offers as a percentage of melt.
- For loans, ask for the total cost in money, not only the monthly rate, and the exact redemption deadline.
A worked example
Suppose you bring a 22k bangle weighing 20 grams and a 14k chain weighing 8 grams. Pure gold content is 20 × 0.916 = 18.32 g plus 8 × 0.585 = 4.68 g, a total of 23 grams. If one gram of pure gold costs 100 in your currency, the melt value is 2,300. An offer of 1,380 would be 60% of melt; an offer of 1,955 would be 85%. The difference is 575, which is why comparing offers matters. Replace the 100 with the live figure from today's gold price per gram for your currency.
Alternatives to a pawnshop
If you want to sell rather than borrow, refiners, bullion dealers and established online buyers usually pay more for scrap gold than a pawnshop. If you need a short-term loan and are confident you can repay, a bank gold loan, where available, is normally far cheaper. Our step-by-step guide to selling gold compares the options in more detail.