Last week, a young man, just graduated from dental school, came to the shop to sell us a small batch of casting gold leftover from his casting classes. We tested his gold as 14K, then weighed and valued it for him. He left the store to get his identification so we could make the transaction, but when he came back, he told us that he had called a pawn shop in Orange county and they had offered him $40 per gram for the gold, more than double what we had valued the material.
We told him that didn’t make sense because the day’s spot value for 14K gold was only $28 per gram. For example, according to Kitco, one of the largest gold sellers in the US, the spot gold market closed June 10, 2011, at $1532.10 per troy oz, (and the gold price has been at or near that value all week).
We did the math to show him– divide the daily spot price of gold by the number of grams in a troy oz (31.104), then multiply by the percentage of gold in 14K gold (58.5% gold). That means that 14k gold would have a maximum spot value based on the June 10 price of $28.81 per gram.
He thought that was curious, so he called the pawn shop again and asked how much they were paying for 14K gold. This time, they told him $45 per gram— he was in our store and put his phone on speaker, so we heard the quote ourselves.
We asked him–Why would anyone in business pay $40 or $45/gram for 14k gold that was only worth $28/gram? Typically, the gold buyer makes a profit by purchasing below the spot value and quickly reselling the material to a refiner for more that he paid.
He saw the logic and the arithmetic, but decided to make the 40 mile drive anyway, just in case. We asked him to call us and let us know how he fared.
Guess what– he left a message the next morning that, indeed, they had not honored $40 or $45 per gram, but paid just slightly more than our value. He lost time and burned gasoline to gets a few bucks more, but we hope he learned a good lesson– If it sounds too good to be true, it probably is.
Read our blog about how the gold buying market really works.
james l. sweaney cga fga. gg
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