Gold can be an attractive investment because of its ability to act as a long-term hedge against inflation and hold its value over time. However, if you are going to buy this precious metal, it is important to do your research.
Some companies mark up gold coins, bars and jewelry by 20% or more. Here’s how to tell if you’re overpaying.
What is a gold marker?
A gold markup is any price charged by a dealer above the spot price, which is the real-time market price of gold. For example, if an ounce of gold has a spot price of $4,700 and a dealer charges $4,800 for an ounce of gold, that’s a $100 profit.
It is common for sellers to pay premiums. They incur costs beyond the price, including mining, distribution, shipping, insurance, storage and credit card processing fees. On top of those costs, the retailer needs to earn enough profit to keep the business going.
The Commodities Futures Trading Commission (CFTC) says you should ask what the price is before buying gold to check how much you’re paying. A tag doesn’t automatically mean you’re being cheated, especially when it comes to jewelry. Jewelry has high markups to account for its design, product and added functionality. However, the markup should be disclosed, and it is a good idea to compare it with what other sellers are offering.
How can you calculate if you are overpaying by 20% or more
Jewelry brands have many variations. But the typical markup for standard bullion products, such as coins and bars, is a low single digit to around 10%, although it can be higher for smaller products and special coins. That’s why the 20% mark can be a huge red flag, and there’s a simple calculator you can use to determine if the premium is unusually high:
(Retail price – spot price of gold) / spot price = markup percentage
Using the previous example of a spot price of $4,700 and a retail price of $4,800, you can arrive at the markup percentage.
(4,800 – 4,700) / 4,700 = marking percentage
This comes out to 0.021. Move the decimal point two places to the right, and you’ll arrive at 2.1%.
Confirm gold weight and purity. For jewelry, you also have to consider karats: 24 karat is pure gold, while 18 karat gold is 75% gold, and the measurement goes down by a few karats. You should also consider taxes, shipping fees and fees when checking whether you are getting a good deal on the gold you are considering. If you want to acquire gold but feel overwhelmed about the process, you can quickly access Money’s gold buying guide.
Red flags to watch for
Red flags can come up when you talk to a salesperson. Any fear-based language such as “limited time” offers and lack of important details such as weight, cleanliness, premium over area and purchase price are red flags. It’s also not a good sign if the seller talks about the price of the property without revealing the spread and how much extra you’ll pay.
Another way to navigate the risks is to get at least three quotes and compare premiums for similar products.
