Wheeling and dealing: How to judge a gold dealer

You’re ready to buy or sell some gold, but you don’t know where to go. Doing business with a dealer can be a little intimidating because they know more than you do. Will you be charged an outrageous premium? Will you be short-changed on the sale? How do you know you’re getting the best price for the gold you have?

Call Lots of Dealers

Like anything else, it pays to shop around. To get a feel for the dealer market, call up a bunch of dealers. Yes, it really is that simple. Ask about the process. Tell them you’re new and just learning, and see what they say. Don’t commit to anything.

After you’ve “interviewed” 10 or 20 dealers, it’s time to read reviews. Here’s the simple part. Find a forum online full of gold investors. There’s a lot of them out there, with Kitco being one of the better ones. Read Lear Capital review pieces as well as reviews for all major dealers.

Finally, don’t be afraid to ask questions. Getting involved in discussion forums is probably the best thing you can do to ferret out the truth when it comes to dealer honesty. Ask about others’ experiences. There are a lot of investors out there with a lot more experience than you. Take advantage of that. Ask them their honest opinion.

Most investors on a forum like Kitco have nothing to gain by cheating you and everything to gain by educating you.

Understand The Commission Being Charged

No matter where you go, you’re going to pay commissions. Commissions are what the dealer makes on the sale of the coin. It’s also how dealers profit when buying coins. In way or another, whether through a spread or a direct commission, you’re going to pay some sort of fee.

The typical fee for something like a one-ounce American Eagle or Canadian Maple Leaf is about 5 or 6 percent. Compare this with what your dealer is charging. If the commission seems a little too high, move on to the next dealer. You should find that most dealers operate with a certain range, remaining relatively competitive. Occasionally, you’ll find someone charging either too high or very low.

Either end of the spectrum is cause for concern. Dealers who charge very low commissions should be suspect – even though they appear to be offering you a good deal. Why suspect? Well, if they’re selling you gold coins, and charging almost nothing, what’s the incentive for them?

There isn’t one, really. So, they might be selling you something other than what’s being advertised. This is somewhat more common in the collectibles and antique gold coin market, but it can also happen in investment-grade coins.

Know The Actual Cost Per Oz

Do you know what your coins should be worth? You should. Before walking into a dealer, do a quick search on the Internet for the current spot price. For example, goldprice.org lists the current price of gold every day. You can look back over days, weeks, months, and even years.

If you’re checking the price before you buy or sell, and you ask the dealer for his price over spot, you can get a good feel for what’s happening in the dealer marketplace.

Understand The Risks

With every investment, there are risks. Understand them. In most cases, your best defence against being ripped off is to educate yourself. Buy as many books as you can on the subject of buying and selling gold coins. Spend several months talking with, and asking questions on, gold forums like Kitco.

Familiarize yourself with every country’s coin that you intend to purchase.

So, for example, if you intend to buy Canadian Maple Leafs, make sure you understand that those coins will be of high purity, but they won’t have the metal toughness of a U.S. gold coin. If you plan on buying Turkish coins, understand that these coins are sold by grams, not oz. Also, Turkish coins are sold according to both the brute weight (gross weight) and the “purity” of the gold.

Many investors wander into unfamiliar territory, like the Turkish gold coin market, and then end up getting a little beaten up. Don’t let this happen to you. Start out with well-recognized coins. So, if you live in the U.S., consider buying U.S. coins first. Then, experiment with Canadian coins. If you live in the UK, start with the Austrian Philharmonic. It’s hard to go wrong with any of these choices, and they’re easily saleable later if you ever want to bail.

Paul Shaefer is an precious metals investment consultant. He enjoyus sharing his industry insights through blogging.