23 February 2013

Euros4Gold and Cash4Gold – What’s behind it?

Within the last year, shops have opened up all around Europe with signs in the window stating ‘Cash4Gold’. These companies are local Jewellers and independent companies taking advantage of the bull market in gold.

The two most recognisable shops are Cash4Gold and Euros4Gold. Please be aware that I don’t mean Cash4Gold in the USA, I’m talking about the European shops, mainly in Ireland.

The business model is easy to understand. People go with their jewellery, gold coins, tooth gold, etc. into the shop. The gold is weighed and quantified and the seller receives x amount of Euros for the gold.

Let’s look into the mechanisms of the gold market. The daily price of gold is measured in Ounces and Kilos. One Ounce equals 31.1035 grams.

The daily price you find is also called spot price and that means for one ounce of 24 karat or 999/1000 metric purity you pay, 1,651 US/oz (5. August 2011).

If you have 333/1000 purity jewellery and your necklace weighs 31.1 grams (1 ounce), your chain is worth 1/3rd of a pure Ounce of gold (24 karat) = 550.33 US$/oz market price from 5. August 2011.

Due to the dealers transportation, fees and insurance costs these shops will pay you less then market price for your gold which is a normal business practice for these types of companies.

In the gold markets we talk about premiums in percentage above spot. The spot price of gold is the market price that gold is trading at on any given day. For example if you buy a 1oz Maple Leaf coin, with a spot price of 1,651 US$/oz, the actual price that you would pay would be between 4 and 6% above spot in a normal market. Meaning you pay 1,651 US$/oz plus/minus 5% = 1,733.50 US/oz for the gold coin.

The premium paid over the spot price of gold represents the cost to mint the coin or the bar, as well as gold dealer and transportation costs.

Ok, here’s the story. I was curious about these shops, because they are sprouting everywhere in Ireland. So I went in one of the shops to find out how much they paid for their customers gold.

So I rocked up, the shop looked good from the outside and very dirty on the inside. There was a scale, 4 old chairs, a counter and business cards everywhere. The lad came from the back of the shop and I asked him how much he’d pay for a 1oz gold coin.

He didn’t know, but said: “We pay the best price and it’s worth a lot.” He then needed to phone his boss and came and said: 750 EUR. A friend of mine went into the very same shop and was quoted 500 EUR
for the same type of coin a couple of weeks earlier. I kindly thanked him and left.

The spot price on that day was 1,000 EUR/oz. The quote that they provided for my 1oz gold coin was 25% ‘below’ spot price and was 50% below what they offered to my friend.

After further research we discovered he’s selling gold coins at 5% over spot to UK bullion dealers. The net result would have been a 30% profit for Euros4Gold.

When buying precious metals be very aware about premiums when you buy from bullion dealers. Coins and bars are usually bought back near spot price not 25% below and only do business with reputable precious metals dealers that have a well referenced customer base.

As gold traders we’re only interested to buy back coins and bars, so unfortunately people that need to sell jewellery and other gold products, the Euros4Gold, Cash4Gold etc, shops are the fastest way of converting precious metal into money.

However understand it is our recommendation to do further research before selling your jewellery and other gold items to these types of companies to receive the best price.

Author: celticgold.eu

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