What To Know Before You Start A Gold Or Precious Metals Business

By Tyler Gallagher, CEO and Founder of Regal Assets, an international alternative assets firm with offices in Beverly Hills, Toronto, London and Dubai.

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Selling gold and precious metals can be a highly lucrative endeavor if done right. In fact, it’s a $182 billion industry that’s expected to grow a whopping 9% per year until 2027. But far too often, I see entrepreneurs try to gain a foothold in the market only to fold within their first year.

That’s because a precious metals professional lives and dies by their reputation. To keep your name respected in the industry, you have to master the ins and outs of sourcing, testing and estimating your bullion, coinage and jewelry.

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As the founder of a precious metals investment company, I’ve decided to put together a quick guide to the must-know aspects of the industry for hopeful entrepreneurs. If you can get these basic ground rules down, you already have a head start on a good chunk of your competition.

Sourcing

Let’s start with where you source the metals.

Over time, your long-term goal is to forge relationships with large precious metals wholesalers. This is when your margins really start to grow and you can scale your business rapidly. But until you’ve amassed a decent amount of capital to get an account with the market-makers (mid-seven figures), you have to start smaller. The market-makers buy directly from the mints.

But you aren’t there yet. In the beginning, you have to start with the public retail showrooms, auction houses or pawnshops to source your gold and precious metals. Check with your local auction houses to see if they sell jewelry or scrap jewelry. See if you can work out a deal with your local midsized pawnshops to buy their scrap metals at 100% value. Then, Google if your state hosts safety deposit box auctions to source low-cost, high-quality metal from unpaid bank accounts.

I recommend staying away from eBay, Craiglist and classified ads if you want to avoid scammers and frauds. Stick to trusted, local-level suppliers where you have due recourse if you run into a bad actor.

Testing

Now, let’s talk testing. When you’re buying wholesale off the major distributors and market-makers, testing becomes less important because the suppliers themselves work with independent analysts to test the authenticity of their bullion. Pawnshop and auction metals absolutely must be tested via any of the following methods:

• Electronic testing.

• X-ray fluorescence (XRF) testing.

• Acid testing.

It’s not enough to check for hallmarks on your bullion or coinage. These days, those can be faked pretty easily. Take it a step further by hand-testing your gold, silver or platinum’s chemical properties using an acid testing kit. Here’s a great guide to DIY acid testing for absolute beginners who want a quick testing method using low-cost materials.

Electronic testing is a better method for testing low-carat metals (14-carat or lower), but they can sometimes misinterpret a gold- or silver-plated metal for the genuine article. If you want to take this route, there are plenty of electronic testing devices available on Amazon for $200 or less.

Last, portable XRF tests are the most expensive option, but they’re highly reliable. They involve spectrometers that can detect the authenticity of a metal in 10 seconds or less, but they run several thousand dollars and even well into the five-figure range for a decent piece of equipment. I strongly recommend acquiring an XRF device at your earliest opportunity because it’s bar none the most reliable method of testing.

Estimating

Last, you need to be able to accurately determine a precious metal’s value. As an entrepreneur, your goal is to buy low and sell at a profit, so it’s imperative that you understand the true value of the scrap metal you’re buying, refining and selling.

Mobile apps or desktop services can be a huge help for estimating your metal’s value. As a rule, the closer you get to 24-carat gold, the more valuable by weight it’ll be.

In the industry, we rely on this formula for estimating the price per gram (PPG) of gold:

Current spot price x purity (in carats) x (PPG you’re paying the supplier) / 31.1 = market gold PPG

This is a great back-of-the-envelope method of manually calculating the market value of your gold based on the spot price. Simply take the finished PPG and multiply by its weight to get the true market value of your gold that’s ready for sale to the customer.

Becoming A Precious Metals Professional

Once you’re doing seven-figure annual sales, you might be able to cut deals directly with the big gold and silver market-makers. Until then, the long road to becoming an accredited precious metals investor starts with frequenting your local auction houses, pawnshops and estate sales. From there, it’s a matter of rigorous testing and estimating to establish yourself as a trusted name in the business.

The road to success for a precious metals business owner can feel long and arduous, but it’s well worth it. It’s an evergreen industry that’s been around for millennia — if you can carve out a slice of the market for yourself, you might one day be able to turn your hustle into a full-blown brokerage or wholesaler.

Young Entrepreneur Council (YEC) is an invitation-only, fee-based organization comprised of the world’s most successful entrepreneurs 45 and younger. YEC members…

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