How much do dealers make?

[dicker]

Hi All

Many of us buy PM’s through dealers.  

I am very curious about the markup that dealers make - let’s just say on a 2018 Sov

Does anyone know what dealers get new Sovs for for for example?

best

dicker

[BackyardBullion]

10 minutes ago, dicker said:

Hi All

Many of us buy PM’s through dealers.  

I am very curious about the markup that dealers make - let’s just say on a 2018 Sov

Does anyone know what dealers get new Sovs for for for example?

best

dicker

I just did an interview with a dealer and I can safely say on new products the margins are often in the low single digits %.

There is also the swing of metal prices to consider, yes sometimes it works in their favour, other times not so much.

That is why a lot of the time things are ordered by the dealer once the customer places the order. This dealer said they can get kilo gold bars very easily, but they dont hold them in stock. Depending on metal prices it can be as little as 1% for the dealer. 

You need to have  lot of commitment and resources to make a real go at it for sure. 

[dicker]

Thanks BYB - So essentially they are laying off their risk, which makes sense, especially if they are a smaller dealer. 

So the reason for asking is.... where the forum does group buys from dealers, could the forum have a direct relationship with a Mint ie the Royal Mint?

best

dicker

 

[BackyardBullion]

12 minutes ago, dicker said:

Thanks BYB - So essentially they are laying off their risk, which makes sense, especially if they are a smaller dealer. 

So the reason for asking is.... where the forum does group buys from dealers, could the forum have a direct relationship with a Mint ie the Royal Mint?

best

dicker

 

In theory, yes. But I would imagine there is a significant amount of hoops to go through and likely a minimum buying threshold which would be a little more than the group orders. Also there is the VAT question. Unless you are a VAT registered business that can claim back that will be a barrier - and as we might be based in the UK when "distributing" or selling VAT becomes an issue.

Maybe it is possible in some way though, @SilverStan has been able to offer Royal Mint products at competitive prices.

[dicker]

Thanks BYB

It is interesting as a co-operative with direct relationships could be interesting - especially if dealing with gold bullion ie no VAT 

best

dicker

[Stu]

Unless dealers are buying solely from the mints then I would suggest you can work out their margins from examining their buy sell spread?

[dicker]

Fair point

[SILVERFINGER]

Dealers I know make profit by buying large amounts and selling them at reasonable prices quickly.

[sovereignsteve]

You will get some idea of margins by looking at their volume pricing. If the spread betwen singles and large volumes is substantial, you can draw your own conclusions; they are not going to sell for a loss.

If they sell their stock in singles, they can make a large profit.

[dicker]

I mentioned to my wife that I would be interested in a dealer. She accurately observed that one has to sell as well as buy to be a dealer. She has a point. 

[SILVERFINGER]

3 hours ago, dicker said:

I mentioned to my wife that I would be interested in a dealer. She accurately observed that one has to sell as well as buy to be a dealer. She has a point. 

I would re-phrase that a bit with people like me on here  , could be interpereted in many different ways 

 

[Pete]

Based on what I have observed over the years, dealers like HGM pay 98% of spot for used gold coins and typically sell at 4% over spot.
Sometimes ( certainly a few years ago ) the sales price was 3% over spot.
Since delivery is charged more or less at cost that would suggest a minimum gross margin of 5%.
Taking into account all overheads like rent, rates, staff costs etc that probably translates to a net profit before tax of about 2% on gold sales.

If you were a forum private seller churning say 5 sovereigns a week ( 5 x 50 x £230 for example = £57,500 ) and with a 5% gross margin that would make a profit of £2,875 per annum.
If the time invested in searching for buys, dealing with a seller, selling and processing each order is about one hour, on average, then the earnings rate is equivalent to £11.50 per hour so a nice earner if a hobby or retired but not for a living without a higher turnover. Not sure when HMRC gets their pound of flesh.

[RogerBelmar]

No two dealers are the same and I always end up buying my PMs from multiple dealers and Mints. Some of my dealers buy direct from the source when customers order from them and are very open about it. Others safeguard their risk by offering a limited but extensive range of products whilst others buy in bulk with price breaks and offload it to their customers at reasonable prices. The bullion trade strikes me as a highly competitive niche market. There are a lot of good dealers out there but also a lot of sharks. I had to send one dealer a cease and desist letter after they kept bombarding my letterbox with their offers after buying just one sovereign. The dealer was buying from the source but selling at overinflated prices.