How to Buy Gold Bullion at a 41% Discount
By Tom Dyson
March 26, 2008
The international spot price of gold is $929 an ounce. Today I found a way to buy solid gold at $548 an ounce.
This is a wonderful deal. It cannot be beaten anywhere in the world. But there is a catch: supply. Normally there aren't many suppliers willing to part with their gold at a 41% discount.
However, this year, that changed. Millions of sellers are trading gold at this discount as I write. And you can buy this gold, if you like. But first let me explain how I found this opportunity...
Yesterday, I visited three pawnshops in Arlington, Texas. I became interested in the pawnshop business for credit reasons. The fall in house prices has destroyed the credit of millions of Americans. I figured demand for pawnshop financing would rise. I came to Texas to test my theory.
It turns out, I'm right. Customers packed all three pawnshops I visited. But the interesting part is, many of those customers were there for one reason: "We're seeing a lot of gold right now," said the woman behind the counter at one of the pawnshops I visited.
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I'll always remember a New York Times article from January 1980. It told the story of the owner of an antique store. The day before, gold had hit $850 an ounce. When the storeowner came to work the following morning, a line of people stretched outside his shop. They had come to sell their gold and silver to him. In the photo that accompanies the story, you can make out two silver candlesticks poking out of the top of one woman's bag. Another man carries a big silver bowl under his arm. He must have made a fortune that day.
I found similar articles recently... Greater Milwaukee Coin and Jewelry is usually quiet. Now people stand in line. It's the same story at South Florida Gun and Pawn. At Courtesy Pawn in Midland, Texas, gold purchases have doubled in the last two months. At Reliable Loan and Jewelry in Raleigh, North Carolina, people are "flopping their teeth on the counter" once a week to sell their gold fillings.
These stories are endless. Just put the search term "gold pawn" into Google and you'll see what I mean.
In the three pawnshops I visited yesterday, I couldn't see much gold in the display cases. So I asked the woman where they kept it.
She explained gold is out of fashion right now, and people don't buy gold in pawnshops anyway. They go to the mall. So the pawnshops sell their gold to refiners. The refiners melt the gold and resell it as bullion.
The latest quarterly report of one publicly traded pawnshop operator I studied stated the company made gross margins of 41% in its scrap jewelry business. In other words, it buys gold jewelry from its customers at a 41% discount to its melt value.
With gold near $1,000 an ounce, and so many people in financial difficulties, everyone's rushing to sell their jewelry right now. This is great news for pawnshops.
There are several publicly traded pawnshop operators. The largest are Cash America International (CSH) and EZCORP (EZPW). If you want to buy gold at 41% discount to melt value and profit as more and more people dump their jewelry, you should consider investing in a pawnshop.
Good investing,
Tom
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