Gold Fever! (part 2)
Posted on March 21, 2011 by John Fritze Jr
My previous post gave you a bit of background so that we can investigate further how this gold scrapping business works in the real world. I’ve explained how fineness and purity (how clean your scrap is) determines what I am going to pay you for your old gold, but other factors are in play too.
The total amount of gold you sell, and even the day you come in my shop makes a difference. The total amount of gold is important because if you give me several thousand dollars of scrap, I am happy to make a few hundred dollars profit, in other words a smaller profit margin. This is because there are lots of people scrapping and all these people take time. Again, time is money. It only takes a little longer to deal with someone with a large lot of scrap compared to someone who brings me a much smaller lot. Think of it as the difference between wholesale and retail. The day you come in makes a difference because if I will be holding your scrap for a week or two before I sell, gold prices could go up or worse, go down. I need to leave a tiny window so I don’t take a “hit” too bad, or too often. Gold is a volatile commodity (more on this later). If I am currently ready to sell within the next twenty four hours, I can afford to be a bit more generous. Sorry, it does no good to call ahead to find out when I will sell next. Many times I do not know myself until minutes before the fact. Now why does it work this way? The answer is because I try to pay you very close to what I receive when I sell, typically within 10-15%. If I was paying out twenty cents on the dollar and keeping all your little diamonds for free, I could afford to hold out for weeks before I would need to sell.
So you look in the newspaper, or on the Internet and get the current gold price. You calculate out what you think you have, compensate for Karat, subtract a bit for stones and other unknowns, but you don’t get offered that price. Why not? The short answer is: I don’t get that price either, neither does the scrapper I deal with. I receive about 15-20% below the market gold price. No matter how much scrap you have, you don’t have enough to deal directly with a refiner. There are minimum amounts that make it cost effective to refine, assay and process. I purchase gold from many people until I have a large amount and that takes time. I process the gold, removing stones, steel and other impurities. I separate the karats. I do all this because I will get the maximum value when I sell and I know exactly within a few dollars what I have. I need to purchase at a percentage below the market price of gold. I then take my lot to a scrapper, who determines if what I have brought is exactly what I say it is. They examine each piece to see if the karat is correct and the metal is clean. They then save up until they have a much larger amount, usually enough to fill a fifty gallon drum! They then bring it to a refiner and get paid, again a percentage below the market price. The refiner, using acids, separates the pure gold from the alloys and remelts it into bullion. At some point, they will re-alloy the pure gold into karat gold and form it into shot, stock, wire or sheet to be used again for jewelry. When the refiner sells their gold, they get a percentage above the market price. That “window” is their profit margin. The refiner will sell gold to a manufacturer or a caster who will make parts that are used in the jewelry business, such as heads, shanks, catches, earring posts and a multitude of other items. They then add a profit to their labor costs. Eventually I purchase parts or castings to be used in the manufacture of my custom jewelry. Roughly, the amount I pay for new gold parts is 300-400% or more than I receive when I liquidate my scrap! But consider the number of businesses that need to handle this metal and the amount of processes that your scrap has to go through to be recycled.
All this discussion about gold also relates to silver, platinum and other precious metals you might not be familiar with such as rhodium, palladium, iridium and so forth (the latter metals all being noble metals similar to platinum). Sterling silver is .925 so it’s about ninety percent pure. Platinum is usually mixed with other rare earth metals and is usually 90 or 95% pure.
Silver jewelry is probably the worst dollar return when you sell your scrap. Silver jewelry is traditionally very high profit margin at a retail jewelry store. Most silver jewelry has multiple heavy layers of plating on the surface such as nickel, copper or chrome all done in an effort to stop tarnish. Both genuine and faux stones tend to be larger and heavier. Much silver jewelry has non-precious metal embedded to gain added strength. Silver jewelry that is not marked, may not be sterling but a lower fineness. Unfortunately silver used in jewelry is not easy to test for purity, so buyers figure accordingly. However, silver flatware or coins always bring a return very close to the market price. The one thing to remember is that knives have stainless steel blades and hollow-ware may be filled with shellac or plaster.
Since a comparatively small amount of jewelry is made of platinum, it will need to be held a much longer period of time in order to have a significant amount. Platinum prices also fluctuate just like gold. Therefore when purchasing platinum it is necessary to use caution when determining a value.
The best gold to scrap is all that ugly stuff from the sixties and seventies. Broken jewelry, watches and even dental fixtures like crowns and bridges are all good items to consider. All the light weight things that have been so popular the last few years are perfect. However you might want to think twice and then think again about selling grandma’s antique broach. Fifteen minutes after you sell your scrap, it’s crushed. Therefore, selling your favorite uncle’s tie tack might not be a good idea. So use some thought when selling your used jewelry and old gold.