With the price of gold over $1100 per ounce, companies offering to buy old gold jewelry have sprung up like mushrooms. The notion of actually sending  jewelry to a company sight-unseen and trusting it to provide a fair assessment and value for your gold has to be one of the most incredible leaps of faith imaginable in today’s business world.

Forget the fact that you have no idea if the company’s “professionally trained and experienced appraisers” will actually provide a real assessment of the amount of pure gold in your jewelry. But if you look at any of these companies’ web sites and do some simple math, you’ll find that they take more than 25% profit margin for assessing and melting down your gold. So on an ounce of your gold they’ll take almost $250 for what is essentially a pretty simple process.  Frankly, they aren’t doing anyone any favors (well, maybe except themselves).

Look for example at Dollars4Gold. They quote the gold rate at $975/oz (it hasn’t been that low in many months). Then they quote the payout rate in grams, making it not immediately evident how much they’re paying per ounce. But if you look at the 24 Karat (pure gold) payout rate you’ll see that it’s $23.51 per gram. Looking at a standard weight conversion chart you find that there are 31.1 grams in a troy ounce (the standard for metals), so multiplying that by the gram payout gives you a rate of $728.81 for an ounce. At a $975/ounce official rate, Dollars4Gold is making $246.19 gross margin on every single ounce! That’s a profit margin of 25%. No wonder every pawn shop and smelter is looking for your gold. Very profitable for something that you just melt, clean off the impurities, pour into a form, cool and re-sell.

But what gets me is the amount of trust that such a transaction requires from you. Hell, would you send something you knew was valuable but not exactly what it’s worth,  to a perfect stranger and trust that they won’t screw you? Man, if you would, I’ve got some great etchings from Picasso to sell.

Remember Steve’s Third Axiom: You can’t protect yourself part-time from people committed to taking advantage of you full-time.

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