As the media rush to report the rise in gold prices, we go behind the counter to discover the effects on the retail jewellers and bullion buyers.
With gold being so unstable now, Bullion Buyers and Retail Jewellers have to adapt to the price weekly or even daily because of how important it is for their sales to reflect the scrap prices.
James Bell, the owner of Gold and Pawn LTD in Havant talks about this and says “countries have been stockpiling gold and precious metals. So, they can go back to their own currency. And I think this is having a bit of an effect on the supply of gold.”
Photo of James Bell outside his shop, taken by me.
He talks about the effect of world economics on gold and states “the recent highs are driven slightly by different world economics that are going on at the moment.”
For businesses, although driving in a lot of customers, it has seen an effect of them because the news announces the rise in price of gold and people immediately come flocking to sell unwanted jewellery or scrap gold.
When this happens, jewellers have to be incredibly careful about testing because there is a risk of buying something for 18ct, only to have it checked again and find out it is only plated or not real at all. James talks about this saying “so we’ll buy off the general public, we’ll just analyse their gold. We got things like XRF testers and magnets and acid tests, the traditional style. So when we analyse their gold, we weigh it up and then we can get them paid.”
XRF is the newest type of tester and uses lasers to pinpoint exactly what the metal is within a piece. Grant, the manager at RPM, uses these all day every day and says “as the price of gold is so high and we have a big team of buyers, we have to make sure everything is tested very carefully as we can easily lose money if a mistake is made”.
This is one of the main reasons any jeweller has to be so rigorous about testing whether that’s using the XRF tester or filing down gold and using the acid.
But buying gold is one part of a bigger issue. Because all the businesses have competitive prices and try to give a good price for gold that you want to sell, many run into the issue of cash flow and this is due to the fluctuating prices.
James talks about this and says that “we generally find that with the recent gold prices; we haven’t held much stock. It’s been better just to flip it and send it to market and be able to reuse the funds.”
Grant also has an interesting point. Because he is a bullion house and works with melting and creating gold, he buys a lot of scrap gold. He said “when the price is really high, we can have a big problem with our cash flow and we have to be organised. Often, we contact our regular customers that sell a lot of gold the day before so we can make sure we have enough money to pay them.”
But this doesn’t only affect jewellery shops and bullion houses. Valarie Mott, an independent seller also has her fair share of issues with the recent price fluctuations. She says “the price fluctuations are a nightmare for my second-hand stock as I must regularly change my prices. Sometimes I can gain, other times I can lose.”
Gold coins as a representation of second-hand stock, taken by me
The main issue when it comes to flipping gold instead of selling it second-hand is the amount of money received back for it. This comes from the profit margin that jewellers would make. If the price increases before being sold to the bullion house somebody like James would make more money, whereas if it drops then you can lose. This makes things harder when the profit margin is only 5%.
James talks about this and says “they are very low normally, traditionally about 5%, I would imagine on turnover that sometimes where the price increases overnight, by the time we send it to market we can do better”
This can cause issues for the cash flow if they don’t get as much as they sold it for the day before per say. Because then going into the next day, they might not have enough money to give to the customers.
Valarie also mentions this, she states “the profit margins for scrap gold are about 5% so I have to be very careful. If I make a mistake or buy something that is fake, I can lose a lot of money”.
Photo of scrap gold on a scale being weighed before price calculation, taken by me
On top of this, it is important for a retail jeweller like James or an independent like Valarie to watch their stock. If they buy something into their shop and choose to sell it second-hand, they have to price accordingly that will give them a profit.
James says “we don’t have to dictate the price that we get for our scrap, so we have no control over that side of it with our stock. We can dictate our own prices, but it has to be within the public’s conception of what is a normal price.”
With the current prices, they have to be re-pricing their stock weekly, or if its bad, daily. It’s hard sometimes to keep stock, especially when the prices are so high because all people want to do is sell. So, many have to keep changing their prices or flipping the jewellery instead of keeping it, to keep their cash flowing.