At the time of this writing, gold is selling at a low of $1271.20 and a high of $1290.40. So when a gold dealer buys and sells at a high of $1290.40, they make a tiny profit of $19.20. Somebody's rich! So gold dealers make a small profit each time. How does the gold business (or other precious metals) make a sustainable business of this? What if the gold dealer is not selling to the public at retail value (which I assume is how many gold dealers do it, they decide their markup when selling at retail price) but instead to other dealers that buy it cheap? If you're not selling coins at their numismatic value and instead you sell bullion and/or scrap gold, you're just making a tiny profit on each transaction.
No dealer is taking on the risk of a fluctuating asset like gold for that little potential profit. If his retail is $1290 you aren't getting $1271 for it.
Simple sell for more than you bought for. If your margin is small you make your profit with volume like many other businesses. There's more to it than that with future purchases ect but the simple version is they're selling the majority of things for more than they bought it for.
Unlike holding stocks and bonds, which have huge number of transactions, precious metals do not. Read the threads about how hard it is to sell when the prices are going down. All of a sudden , the "sales" stop, then they have a " shortage" or a shipping delay, and the premium starts to become greater and greater, meanwhile some are using your payments to buy more gold at lesser prices or gold contracts to be ready when the price goes up again. They know their business, you won't get their gold when the price is below their cost. A few have had business problems due to extending their credit/cost ratio, but the name brands will stay viable. IMO, Jim
You're inferring that dealers are working on a tighter spread than they really are. Take APMEX and the 2017 one ounce AGE for one example . . . At this writing they are paying $1287.80 and selling for $1338.79 . . . A profit of $50.99.
At a recent coin show, one dealer was selling silver at 13x face value, and buying at 10.5x, when "melt" was around 12.5x. That's $2.50 profit on every dollar face value of silver they flip. The pawn shop I frequent buys silver at around 2/3 of melt value, and puts it out at about 33% over melt. In other words, they mark it up exactly 100%. That's how dealers make money on precious metal coins. Buy low and sell high today, rather than buying high today and waiting for a day when you can sell higher.
And the only way they can do it that cheaply is because of the huge volume they do. That's what, about 4% or so ? The average individual dealer buying and selling bullion, it has been my experience that most try for about 10%, give or take 1 or 2%.
3.81% actually . . . Most coin dealers are not set up to work on nearly that sort of margin. That is almost exclusively the province of the top ten bullion dealers whose business model is built around high volume purchases and sales of a very limited portfolio of related items. Narrowly confining one's business to such guidelines permits efficiencies that allow enough retention of gross profits to still come out ahead when working on such a low margin. I do not envy them, as that's no business model for the faint of heart.
Assuming the profit is as large as you say it is, if you do that 10,000 times, you can make a pretty good living. It's based on volume.
