Recently (Feb. 27), we promised to tell you about the history of an unusual pawn shop that didn’t take gold – the favorite transaction of most pawnbrokers – or guitars, firearms, clothing or any of the many, many items that most pawnbrokers deal in.

It was the Provident Loan Society of New York, a non-profit established following the Panic of 1893. In those days, even large businesses could hardly obtain banking services for years, and the situation of the working family in need of a loan was desperate.

The Provident restricted its lending to diamonds, which were the form of portable wealth commonly used by ordinary people. The presentation of a diamond engagement ring was not just an expression of love. It indicated that the groom (the main wage earner in most working families in those days) was solid enough to provide a cushion, beyond the weekly pay envelope, for the security of his family.

In a time when health insurance and unemployment insurance were unknown, when a line of credit (similar to a credit card) was impossible for working families to obtain, possession of a diamond meant the difference between  having a roof over their heads and being tossed onto the street in the event of layoffs or injuries or sickness.

But abusive lending practices were common.

The Provident was set up to serve the better-off working poor and middle class. It restricted itself to diamonds, as related in “God Bless Pawnbrokers” by Peter Schwed, an early president of the Provident who later went on to become chief executive of one of the largest publishing houses.

The Provident still exists, but it is not as flourishing as it once was, though today it accepts gold jewelry and gold watches as well as diamonds. While it offered a better deal for those families that had a diamond, it could not compete effectively with commercial pawnbrokers, who were ready to take bigger risks and offer more accommodations for people wanting short-term cash – and who did not have a diamond, even though they might own a TV, tools, or a violin.

The first, simple test is to touch the jewelry or coin with a magnet. At Kamaaina Loan, we use a small but powerful neodymium magnet (the kind used in speakers).

If it’s just plate (sometimes sold as gold-filled or under other tricky names), the magnet will be attracted to the iron underneath.

Gold plate is real gold but so thin its value is insignificant.

If the item is not plate, then a series of tests can determine its karat-value, or proportion of gold to base metal.

24K is pure gold. Jewelry is made from lesser karat-gold, because pure gold is too soft to be durable.

Thus, 12K is half gold, and 18K is three-quarters gold.

If gold is selling for $1,800 an ounce (it’s close to that today), then a 14K ring weighing 10 grams contains a little over a sixth of an ounce of gold.  There are 31.1 grams in a troy ounce, so the 10-gram ring weighs just under a third of an ounce, and 14K is a little over half gold, so the ring contains a bit more than one-sixth of an ounce of gold.

At $1,800 an ounce, the gold itself has a value of about $300. After it has been refined. The market value of the gold while it’s still in the ring is going to be something less, because of transaction costs, shipping costs and refining costs.

But that’s how a pawnbroker determines how much gold is in your piece of jewelry.