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How Gold Buyers Make Money From Scrap Gold

May 19, 2015 | | Say something

I know it sounds obvious, given that gold is such a high priced commodity, but most people have no idea how a gold dealer, specifically one that buys and not sells, makes money.

It sounds like it would be simple for a gold dealer to make money. They simply pay people a low price for their unwanted gold and then sell it to someplace else for a higher price.

Unfortunately, for them, in this day and age everyone has fast access to find out exactly what the current (spot) price of gold is. So, if they go to sell their gold to a dealer and that dealer offers them and low price, they can easily see the price they are being offered against the spot price.

This means that sells are in the position of advantage when negotiating prices. It gets even worse for the buyer as the seller has so much choice of what dealer to choose.

Basically, it is a sellers’ market as they have the right information and many places to sell.

But why are there so many gold buyers in business if there is no money in it you may ask? Well, the answer is that there is plenty of money to be made, especially in larger cities, even in smaller cities. For example, in a local city around Los Angeles I see there are at least 20 available when I look for Glendale gold buyers to sell my gold.

Gold buyers also have a risk to take. When someone walks into their store, the sellers gold has to be tested to ensure it is in fact gold and what quality the gold is (price of gold is based on what purity – Karat and not Carat – the gold is). No test is 100% effective, including the acid test, and the only way to know you have gold is if it is melted down.

So the way they make money is that they do 1 of 2 things with the gold they purchase.

The first method is that they leverage the amount of gold they receive, melt it down and sell it in bulk. The more gold they can sell to a refinery the closer to the gold spot price they will get.

Watch melting gold in the video below…

The second method is to reuse the gold they get and re-purpose it into new jewelry. We all know that selling jewelry has huge mark-ups so if they can get gold at below spot price and then use that gold in jewelry that sells for many times the value of the metal – they can make a lot of money.

This is the reason that pawn shops will always give sellers lower prices that gold dealers. Pawn shops will not be able to resell the items or re-purpose the gold where gold dealers are usually in the business of jewelry.

From this we can easily see that the best place to sell your unwanted gold will be to a sell to a dealer that also deals in jewelry. This means they will be able to offer a higher price because they will be able to re-sell or re-purpose and make a good profit.