A lot of people often wonder how dealers make money from buying and selling gold. It sounds so simple but it is a complex answer. There are no gold bullion dealers that are alike. To understand the answers you need to follow the different strategies that bullion dealers use.
If you have ever tried to sell bullion, you may have realised that the price that gold dealers Melbourne charge is almost less than what they will buy your gold for.
You will have come across the term “premium”. This is the price they add onto the actual market or spot price. How high the hat price is will depend on individual dealers. It can be a few dollars more or a couple of hundred dollars above the spot price. There are no set rules and premiums can be a little wild.
With the price of gold being so closely tied to the value of the U.S dollar, the premium might not be a viable way to make money in countries with strong currencies or when the demand for gold is low. A low demand for gold may force gold dealers to trade below the market price. If you have gold you would like to sell the best time to sell bullion is where premiums are high or the demand for gold is high like it has been over the last couple of years.
#1. Hedging
For gold who don’t intend to charge high premiums, hedging might seem like a good options. What is Gold Hedging? What is hedging: hedging is a strategy where companies lock the value of gold so it can be sold at that price in the future. Most gold companies will hedge a certain amount of their gold despite future fluctuations. This might be an advantage especially if the price of gold had gone down dramatically. For instance, before 2004, there had been a decade-long fall in the price of gold. A lot of gold companies decided to sell quickly in 2005 when the gold price suddenly went up to avoid losing money in case the price of gold went down again. There are trading costs attached to hedging. They may not be a real profit to be made when a gold dealer hedges his gold but it is an effective safety net in case of a sudden collapse in the gold price. Gold buyers do not stand to make much by hedging but they can expect a total wipe-out in case something were to go wrong in the market.
#2. Profit From Price Movements
The other way for gold dealers to make money is to watch the markets going up and down. They buy the gold when the price is low and sell when the spot price is high. That’s a sensible way of doing business. However, gold is unlike any other thing. You can’t simply decide to sell less gold because the price isn’t high enough to make a good profit. Dealers will offset their losses by timing their purchases. They may allow a certain amount of time to pass before selling and replenishing their bullion stock. This might work better for wholesale gold dealers and not so much a good option for ordinary bullion gold dealers Melbourne.
#3. Selling “Extras”
One other way that a dealer stands to make money that may not be available to the ordinary bullion seller is to sell extra items associated with gold. They can sell protective cases, guide, gadgets, tools and other things. You are most likely to make much profit with these extras.
