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Gold & Diamonds - Buying Your Way To Better Profit

Jan 21, 2008
13 years ago I got my start in jewelry store ownership when I opened a scrap shop buying and selling gold, diamonds, watches, & antiquities, eventually I moved to high-end bridal. I purchased a lot of scrap gold and made a nice living do it, and that was when gold was $275 per oz. Now you can offer someone $450 per oz. and it becomes a fair amount for their scrap jewelry. Imagine trying to offer someone $7 for a 14k gold bracelet that they paid $75 for, that's the way it was 10 years ago. Now let's look at today's scenario: A customer buys a 3 gram bracelet 10 years ago for $75, at today's price you can scrap the bracelet for $46. You can offer $23 for the bracelet and it seems like a fair offer. This makes it much easier to buy scrap from customers and there's a ton of money to make - you can't ignore it any longer. If you've never purchased gold over-the-counter and would like to get some insight on how to successfully create a buying department then please read on.

Calculating the value of scrap gold

To determine how much an item is worth you need to know what the daily spot price is for gold. I use the website kitco's website for daily quotes. Take the daily spot price and multiply it by the percentage of melt that your refiner will pay you for gold (Most refiners will pay you 80%-90% for .999 after melt, the correct number is 90% and I wouldn't use anyone that pays you less), then take that number and multiply it by the karat content of the metal, then take that number and divide it by the weight, then make your offer based on that number. So the formula is (spot gold) x (% of melt) x (karat) / (weight) = scrap value per gram or dwt. Follow the example below:

Example - 5 gram 14k gold bracelet, Spot Price - $895.00/oz.
$895 x 90% = $805.50/oz.
$805.50 x .585 = $471.22
$474.22 / 31 grams = $15.30 per gram
$15.50gr x 5 grams = $77.50 full scrap value

I would offer $38.75 and make a %50 gross profit

How much should I offer my customers for gold?

Many full fledge scrap shops/pawn shops offer no more than scrap with an effort to buy most gold at 1/3 scrap. I personally offer of the scrap value in an effort to be fair and competitive. If you have an established retail store then creating a buying department is a windfall and any profit you make is pure gravy anyway. So why not be as fair with your customers as possible and still make money. I create a sign daily with the current day's offer per dwt on 10k, 14k, 18k, platinum. I display this in my buying area and everyone gets the same amount for their gold. This will legitimize the buying process and remove some of the stigma behind buying gold & diamonds. Some of your competitors play games with their customers and won't make them an offer. They require the customer to tell them how much they want for their jewelry, in the end the jeweler ends up looking like a huckster. I prefer to maintain my image in the community as a resource for honest answers and services for jewelry needs. So I lay it all out on the table and let the customer decide what's best for them.

I also recommend that you create a separate area in the store away from your paying customers. Mixing the two is not good and when a paying customer witnesses you purchase used jewelry, they can sometimes assume that most of your jewelry is used. So keep the two apart from each other. If a selling customer starts a conversation with you in front of a buying customer then kindly usher them over to the buying area. I can't express enough the importance of using your separate buying area.

How much do I offer for Diamonds?

When the scrap gold has melee I calculate the approximate carat weight of the diamonds and pay the customer $1.75 per carat point. This of course assumes that the diamonds are of finer quality and can be resold. I don't pay more than this because some of the diamonds will be damaged when they are removed and some of them will be lost. In addition, you can buy nice quality melee from .01ct to .08ct for around $500ct. If the diamonds are .25ct and larger then I use a slightly different formula for buying them. Sometimes you'll come across jewelry that is more important looking or is re-saleable and then you'll need to change your entire mindset. You'll have to determine how much that you think the item can retail for and then make an offer for 1/4 to 1/3 of the projected retail amount. Don't be shy about making the offer either. Too often I speak with jewelers that are afraid to offer a customer 1/4 of what it would retail for. Keep this in mind - You're paying COD! You can buy beautiful new jewelry any day of the week from your suppliers and get generous terms. So you need incentive to buy their items in place of buying it from your suppliers and you'll also have to advertise in order to see those customers. You don't need to purchase advertising to buy from your suppliers either, so don't pay more than 1/4 to 1/3 retail for those items.

Larger loose diamonds will take a different approach when making offers. I usually pay 75% to 30% back of rap for round, princess, and emerald cuts. I'm not so aggressive with all other shapes and sometimes I pass all together. Let me give you an example - let's say you can purchase a 1.00ct G - SI2 pear for $1500 from your customer. You could retail that stone for $4000 and make $2500. What a great opportunity - right?! Wrong! Compared to purchasing the diamond from your supplier for $2800 and making $1200 it looks attractive. But when is the next time that you'll sell a pear shape, I have pear shape diamonds that I purchased 5 years ago that I still haven't sold. It doesn't matter how cheap you can buy them for if they can't be sold. Don't tie up your money, save the funds to buy more scrap gold, rounds, and princesses. You're better off calling your supplier when you need off-market shapes. Don't be tempted unless it's a dirt cheap deal.

I don't use the rap sheet for I1 or imperfect diamonds, keeping in mind that there are 5 different price categories for I1 diamonds. 1ct round diamonds that I1 clarity grades can sell for $1000ct or $2000ct and you have to determine the perceived value of the diamond. Once I've determine the perceived value of the diamond I can figure out the amount that I would be willing to pay. If I've determined that an I1 diamond will retail for $2999 then I would pay $800 - $1000. If you use the rap sheet to determine the purchase price of an I1 then you'll pay too much. Always consider the perceived value for I1 diamonds.

I must preface the diamond buying side of things by saying that unlike gold, you shouldn't make an offer. Let me tell you why - diamond prices are transparent and customers are ill-informed. Many customers have good idea of what their diamond is worth because it's easy to shop prices now. Also, many of the people that you'll be dealing with were involved in purchasing the diamond and they know what the diamond was purchased for. What's more, they could have an inflated appraisal that was given to them by the original jeweler and in their minds they're using this as a starting point for an asking price. There's no reason to get involved in a guessing game if the customer is way out in left field on their asking price. I'll give you a scenario that I've been involved in many times...A customer has a diamond to sell and asks me to make an offer. I decline and ask them "Well, how much do you want for it?" they respond to my question with "No, I want you to tell me!" I don't want to miss an opportunity to purchase the diamond so I give in to my temptation and make an offer. Then the customer rips the diamond ring out of my hand and says "That's ridiculous, my appraisal says it's worth twice that!" What did you accomplish by making an offer? Nothing, all you did was make someone angry and now they think that you're a scoundrel. Of course, that's his/her opinion but why give anyone a chance to tarnish your reputation. Don't make an offer on diamonds, 70% of the time you'll come out looking bad. Find out if they are thinking reasonably by asking them what they want first and if they won't give you a number then pass.

Know your buying laws & avoid problem buys

Before you go guns blazing, you should contact your local police department and determine if there is a holding law in your city or town. A holding law requires you to hold all jewelry purchases for a specified amount of time before selling or scraping it. If you do have a holding law in your town, make sure that you conform to their standards and apply for any necessary permits. Some towns require a criminal background check in order to be approved for a buying license. Even if you don't have a buying law I recommend that you create a series of your own standards and require your staff to abide by them. When buying diamonds from customers I require that the person supply an appraisal or receipt with their name on it. I also require that everyone selling to me provide a copy of a drivers ID and sign a release form. The release form states that the items being sold are in fact their personal property and they have full right to sell it. In the event that the items are stolen, nobody can accuse you of unlawfully purchasing them. I have a file that I keep on my selling customers and I save the release forms, receipts, and drivers ID.

Finally, I subscribe to the theory that if a customer seems shady then the deal probably is bad. Don't waste your time, simply pass. The last thing you want is the police interrogating you in front of your regular customers. I think you'll find though that requiring ID and sometimes receipts will just about eliminate all non-legitimate store buys.

Remember the principles of buying

* Keep your buying business separate from your selling business
* Do make offers on scrap gold
* Don't make offers on larger loose diamonds
* Abide by your holding laws and keep accurate records
* Enjoy the profit
About the Author
Andy Moquin has spent 16 years in the jewelry business buying and selling over $20,000,000 in diamonds and custom jewelry. He can be reached at: learn about diamonds custom jewelry design andrews jewelers
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