The truth about the gold sales industry is that the pricing and markup model that virtually all retail companies use is astronomical. If it were applied to any other industry people would be in the streets like the end scene of a Frankenstein movie.

For centuries conservative investors have secured their wealth by anchoring some or all of their liquidity in tangible assets like gold and silver. The buying power of an ounce of gold has remained surprisingly constant. It will still buy as many loaves of bread as it did a thousand years ago. The 1 ounce $20 gold piece will still buy the finely tailored men’s suit that it would purchase in 1920, while the $20 bill will now barely pay for the alterations.

Recently precious metals have been gaining in popularity. Economic uncertainly in the U.S. and around the world have more and more people looking into alternatives to the merry-go-round of stocks, bonds, and fiat currencies–that governments find so easy to devalue by printing huge quantities of paper that is backed by nothing. This is why the Dollar has lost 99% of its buying power in the past 90 years. After the stock market crash a few years ago, the U.S. and other governments around the world have artificially stimulated economies by printing more money than at any time in recent memory. The “quantitative easing” program by the U.S. Federal Reserve has more than doubled the number of dollars in circulation in a few short years. When there is more of something, it tends to be worth less. As Nobel Prize economist Milton Friedman said, “Inflation is ALWAYS a monetary phenomenon.” Print a bunch of money and prices have to go up.

So, many people are starting to question the safety and security of their savings and investments. How can we be at all time highs in the stock markets with the worst economy in decades? Why did stocks crash to 40% of their values in 2008? Could this happen again? Does the national debt of a zillion dollars mean anything?*

Enter the countless gold companies you see from coast to coast. They’re on television, radio, magazines, and all over the internet. They want to save you, to protect your savings, your portfolio, your IRA’s and the money in your piggy bank. They’re great companies; they’ve been around for 20 years, they have an A+ rating with business bureaus. Famous actors, politicians and radio talk show hosts tell you what a great company this is, and they wouldn’t buy gold anywhere else. (The truth is more likely that these celebrities are paid millions of dollars to endorse these companies, so they have a vested interest, and are hardly impartial in their opinions).

As with most industries, gold companies come in all flavors of the spectrum. Some are larcenous thugs who lie about everything including the day of the week; others are reputable companies who deliver real gold and silver with no chocolate inside whatsoever. And some companies are in between. (See the Minnesota Bullion Coin Law)**

The truth about the gold sales industry is that the pricing and markup model that virtually all retail companies use is astronomical. If it were applied to any other industry people would be in the streets like the end scene of a Frankenstein movie. Some companies do not divulge the markup–or “spread” on the transactions they sell. (the difference between the wholesale cost or buyback price–“Bid” and the sale price–or “Ask”). Others are honest enough to use client agreements that stipulate the “maximum spread” of the business they sell, but unfortunately many people overlook this or it gets lost in the shuffle. In any case, the typical bid/ask spread in most gold sales is a whopping 30% to 40% or more! Now, consider this. This 30% (or higher) is not the markup on the product, as many clients think. It is the differential or the percentage of the total sale price that the markup constitutes. Example: a 33% spread would be a 50% markup. Johnny buys a gold coin for $100 and marks it up $50 (or 50%) to achieve a sale price of $150. The $50 is 33% of the $150, so that is the “spread.”

So do the math. Joe wants to protect his wealth by buying gold. He sends $300,000 to ABC Gold Company (just an example, there’s no ABC Gold Co), who pockets $100,000 (33% spread you know) and buys gold with the remaining $200,000 to ship to Joe. Now Joe sleeps better knowing he’s got some gold; but he probably has no idea that if he needs to sell his gold back to ABC Co. he’s down a whopping $100,000. This is the differential that he needs to overcome before he is at “break even” on his investment, much less move into profit.

Imagine you have a $600,000 house that you want to sell… What if the realtor took $200,000 in commission!

Most gold companies do not stock inventories of metals, they act as brokers. They buy the gold only when they need it to sell to clients–otherwise they would get killed on market exposure when the prices go down. And guess where they get the money to buy the gold? That’s right. They get it from YOU. When a client buys gold they have to send the money to the gold company in advance. Then the gold company takes that money and buys the gold and ships it to the client (or puts it in the IRA or whatever).

So what’s the point? The point is that gold and silver can be good investments for preservation of wealth, safe haven, and hedge against inflation and stock market corrections. This is why most people buy them. But it all depends on how much the mark up and spread is on these transactions that determines whether it is a good deal or not.

At Fairpoint Gold Group we know this business inside and out, and we refuse to gouge our clients with these outrageous prices on precious metals. Our mission and our pledge to you is that we will be honest and fully transparent as to the choices and options in precious metals. We will give you the pros and cons of the various products, we will price them fairly and will tell you exactly what our cost and markup is on every product we sell. Our philosophy is simple: A fast dime beats a slow dollar, and happy clients are better than angry clients. Contact us by phone or email and we will answer your questions and proceed however you might wish.

*the actual current U.S. National Debt is just over $19 trillion, and climbing rapidly. The “Zillion dollar” comment is exaggeration.