People believe that gold dealers such as Brisbane gold Buyers makef money when the gold price goes up. They believe gold dealers lose money when the price of gold goes down. This is far from the truth. Gold buyers tend to be risk averse especially with the volatility of precious metal markets, so they are speculating on the spot price of gold in the future.
So, how do gold buyers protect themselves against the volatility of precious metal?
You will find two types of gold buyers in Brisbane: the ones that stock gold and ship “in-house,” and the ones the ones that broker sales and offer drop shipping for large wholesalers. Then, there are those who do a little bit of both: stock some products and act as brokers for others.
Gold buyers who keep an inventory of gold, “hedge” this inventory in the market. They take the “long” position when they buy gold and they “short” gold when they sell because they believe the price of gold is about to drop. Regardless of the direction the price of gold takes, gold dealers will still be protected. If the price goes up by $20, the gold dealer makes an additional $20 on the sale but loses $20 when he takes a short position. However, if the gold price goes down instead of up, the gold buyer loses $20 on the sale but makes it back again on his short position.
Gold dealers who mostly broker the sale of gold between buyers and sellers isn’t affected by the spot price. The spot price they charge customers is almost the same as the spot price they pay the wholesaler. What they are essentially doing is passing along the responsibility to the wholesale and make money off the premium.
The system is not always fool-proof. A lot of dealers like Brisbane gold buyers lock in the customers to a specific price before that customer pays, this way they are hedging their positions. If they don’t they would be leaving themselves open to price fluctuations if the customer decided not to pay. This is true for gold bullion dealers who operate online business (which nowadays, is almost everyone).
A lot of would-be gold investors make the mistake of thinking that buying gold online is the same as ordering any old thing off the internet; that the gold dealer is in no way affected by an order cancellation. The truth is, an order cancellation can cost the gold dealer a lot of money.
So, gold dealers largely make money on the “premium” which is the money charged above the spot price. For instance, if you were to buy a Krugerrand, you may be charged $60 over the spot price. This is the premium.
When a gold buyer buys gold from you, he would send it to a refinery to have it melted and refined, so refineries and mints might charge approximately 3% premium to their wholesalers. There’s hundred of gold dealers throughout Australia that buy and sell gold. Find the one with low premiums to get the best value for your money.