How Do Gold Dealers Make Money?

If you have some gold to sell, then you need to find a reputable gold dealer to find the best price for your gold. This can be a challenge as because a lot of people are looking to make the most of the gold market and will often resort to some unethical practices to turn a meaningful profit. Before we go further, we should explain what a gold dealer is and what they do. For the purposes of this discussion, Gold dealers are any major national businesses that buy and sell gold either from a brick and mortar establishment and online. It refers to major national companies as well as small-time eBay buyers and sellers as well as gold coin dealers and cash for gold buyers; basically, everyone who sells and buys gold in any shape or form. Some of these dealers are legitimate whilst others aren’t. There are some dubious practices that dealers use that you should be aware of.

#1. Hedging

The gold price is always fluctuating and dealers have to find a mechanism to guard against these market fluctuations. Whilst gold market traders are able to do things by hedging their stocks, gold dealers use a system known as Replacement-Cost Pricing. If a gold dealer bought a gold coin for when it was only $1600 an ounce, he would make a profit if the price of gold rose between the time he bought the gold and the time he is able to sell it. If the price of the coin on the market is $1700 then that would be the replacement cost of the coin. There is no way that the dealer can sell the gold for anything less than $1700 including his own markup. This is important to keep in mind, especially if you want to sell some of your gold coins to raise cash. You cannot then come back later and expect the dealer to sell the gold coins back to you at the same price you received for them initially. The dealer will base the price that he sells back the gold coins on what it would cost him to replace the gold coins in his stock.  When it comes to collectible gold coins the price that a gold dealer might be willing to pay and the price he is willing to sell at can differ by a wide margin.

#2. Price- Gouging

Gold dealers use the gold spot price to work out their daily prices, however, most of the time dealers have to consider the market in which they operate. It’s all about offering competitive prices, but you can’t get away with a lot if there are more gold dealers in one area. For instance, in a small town with one dealer buying and selling gold, the dealer can get away with offering lower premiums for gold sellers and charging higher premiums for gold buyers because, he is, after all, the only game in the area. It is slightly different in online marketplaces. Online gold dealers might find it harder to buy at low prices and sell high, because if they did that, customers can always go elsewhere.

#3. Buying Wholesale

The retail price of a gold coin is not the same price you will get from a gold dealer.  If you want to get the same amount you paid for your gold you will have to do what a gold dealer would do- find a collector who is willing to pay the retail price or more. When it comes to gold coins there are two factors that affect its value: The spot price of gold and the collectible value of the gold. It also depends on demand and the size of the market. The size of the gold coin market is usually small and not particularly open to wholesale deals. If the market is large, the gold dealer will be able to sell more volume and perhaps pass on the savings made on wholesale buying to the customer. In a small market, the dealer needs to make more on a single unit. Most gold dealers diversify and often focus on more than just gold coins or gold jewellery.

There is nothing evil about turning a profit, it might be helpful for a customer to understand how dealers actually go about doing this in order to gauge if the deal they have received on their gold is fair.