Confessions of a Gold Dealer: What They Don’t Tell You

Gold Dealer Secrets – Taking a Peek Behind the Gold Trade Curtains

Bullion.Directory Quick-Read Guides and Articles
By Alice Walker
Investor Relations Manager at Bullion.Directory

Gold has been captivating humanity since time immemorial. It’s a symbol of wealth, a medium of exchange, and a safety net in times of economic turmoil – but it’s also a magnet for the greedy, the shady and the downright dirty.

As an experienced wealth advisor, I’ve been involved in gold investments of over $20m, and one thing is clear – the gold market isn’t as simple as it might appear at first glance.

Let’s delve deeper into the secretive world of the gold trade. Trust me, this will be an eye-opening journey.

“Gold dealer secrets” – it sounds like the title of a page-turning thriller, doesn’t it? The reality, however, might be more nuanced, but it’s no less intriguing.

We’re about to venture behind the scenes and uncover the truth that seldom makes it to the limelight.

The Bare Truth of Markup and Profit Margins

In every business, there’s a little thing called markup. This is the difference between the price at which a dealer buys an item (in our case, gold) and the price at which they sell it to you.

The bigger the markup, the larger their profit.

Gold bullion, as a commodity, tends to trade relatively near to it’s market value, or Spot Price – with the premium you pay over this covering mining and refining costs, transportation and packaging – and then finally the dealer’s markup.

Back in my early days in the business, a gold dealer gave me a piece of advice I never forgot: “We make our money on the buy, not the sell.” It wasn’t about the fluctuations in gold price; instead, it was all about the spread – the difference between the buying and selling prices.

So, let’s say a dealer gets hold of a gold coin for $2,000. They may then sell it to you for $2,050, $2,100, or even more. That difference, my friends, is where they make their living. To be clear, this isn’t inherently malicious – it’s the way businesses operate. But understanding the inner workings is key to being a savvy investor.

What some dealers do however, is find ways to increase and sometimes vastly increase their markup – and this is where investors can get caught out…

Unmasking the Myth of “Rare” Collectible Coins

Picture this: A client walks in, wide-eyed and enthusiastic, clutching a glossy brochure marketing “rare” collectible gold coins. They’re described as ultra-rare, incredibly valuable – a once-in-a-lifetime opportunity.

The truth, however, can be starkly different. Not every coin that’s sold as “rare” is truly rare – and this is one of the most common wheezes played by gold dealers – one which sees at least one major dealer hauled before the Feds every year.

Who’s to say what rare is? Less moral dealers may come to a deal with mints giving them exclusive rights to sell a particular coin. It may just be a regular bullion grade coin, but if that dealer is the ONLY one selling it then it could indeed be called rare.

Of course it’s just a regular bullion coin, but because this can’t be bought anywhere else it will seem difficult to get – and coupled with clever marketing and a sweet-talking sales person, investors may find themselves paying 40%, 60% even 100% markup on these “collector’s pieces”

I’ve seen well-meaning investors pay a hefty premium for such coins, seduced by the prospect of owning something unique, only to discover later that the intrinsic value of the coin (that is, the value of the gold it contains) was far less than what they shelled out.

Sure, some coins are genuinely rare and command a high price (these are a specialist field called numismatics), but it’s crucial to do your homework before opening your wallet.

For safety, stick to well-known bullion bars and coins from national mints. These tend to carry acceptable premiums and can be easily resold often above spot, thanks to their popularity.

The Great “Limited Supply” Illusion

“Buy now, before it’s too late! The supply of gold is dwindling!” – an age-old sales pitch that still makes rounds in the gold market. It’s true that gold is a finite resource, but is the situation as dire as it’s often made out to be?

The World Gold Council estimates that we have enough already-mined gold to meet the demand for about 30 years, even if not a single ounce of new gold is extracted during that time. While gold mines aren’t eternal, the so-called “limited supply” argument is often exaggerated to instill a sense of urgency, pushing up prices and accelerating sales. Don’t be swayed by the scarcity scare – gold production has remained relatively stable over the years.

Yes we do have market squeezes when for whatever reason the physical supply of gold and other precious metals can be reduced, pushing premiums higher due to market demands – but these tend to be short-lived and normal supply will return.

Of course when every gold-bug’s dream comes true and the brown really does hit the fan, we’ll see retail gold availability stop overnight, but the chances of this ever happening long-term are remote, and if we did have a proper Armageddon-type event, I think we’d have more to worry about than increasing our gold holdings.

Buy-Back Guarantees – A Double-Edged Sword

A gold dealer promising to buy back your gold anytime sounds like a comforting assurance, right? But often, the reality is more complicated.

While the large majority of dealers do honor their buy-back guarantees and will do at a fair or better-than-fair market price, it’s important to understand the nuances. The price at which some are willing to buy back is frequently much lower than the price you paid.

Let me share a story of a client who invested heavily in gold coins. A few months later, when she needed to sell them back due to a personal financial crunch, she was stunned at the buy-back price offered – it was significantly lower than the original price.

She phoned around several dealers and every one of them was able to beat the supposedly good buy-back price by a huge margin.

The takeaway here? Always familiarize yourself with the terms of buy-back guarantees before investing, and don’t be afraid to seek other quotations.

Hidden Fees and Costs – A Sting in the Tail

Then there are the hidden costs that come with gold investment – commissions, shipping fees, storage fees, insurance costs. Particularly deceptive are storage costs.

Some dealers offer to securely store your gold – for a price. Over time, these costs can chip away at the value of your investment, turning what seemed like a great deal into a costly affair.

I know an investor who was taken aback by the substantial annual storage fees for his gold, something he hadn’t factored into his investment calculations. Always ask for a comprehensive cost breakdown before you invest – it can save you from unwelcome surprises down the line.

It will help to work with a trusted gold dealer and a place like Bullion.Directory carries detailed reviews and ratings for leading gold dealers, and runs and annual Bullion Dealer of the Year public vote, making it easy to find trusted gold dealers with fair (and sometimes free) storage costs.

Outsmarting Gold Dealer Secrets

The world of gold investment may seem like a labyrinth with its complexities and hidden traps, but remember – knowledge is power.

Don’t hesitate to ask questions, do thorough research, and refuse to be rushed into making a decision. Read up on some of the excellent free guides available from leading bullion dealers and go into any deals equipped to know what’s what.

Know about the buy-sell spread, be skeptical about scarcity hype, get the complete picture on buy-back guarantees, and account for all costs involved in the investment.

It’s your hard-earned money on the line – so take the reins and make informed decisions.

Investing in gold can be a rewarding journey, but it’s not without its challenges and potential pitfalls. However, a good gold dealer isn’t just out to make a quick buck – they should be aiming to build a long-term relationship with you, the investor.

Navigating the gold market with an understanding of these lesser-known aspects can empower you to make sound investment decisions.

In the fascinating world of gold investment, if something seems too good to be true, it likely is. Remember, it’s your financial future at stake – stay informed, ask the right questions, and make the choices that best align with your financial goals and risk tolerance.

With knowledge and diligence, you can confidently venture into this glittering landscape.

 Previous Post

Your Game Plan for Gold Investment During Economic Crises

Next Post  

Decoding the Myth: Is Gold a Safe Haven Investment?