The “Jeweler’s Loophole” — Can You Really Buy Gold For $421 an Ounce?

By Travis Johnson, Stock Gumshoe, April 17, 2012

“Buying PURE gold bullion for $421 an ounce while retail investors are paying $1,700 for the EXACT same gold?”

That’s the promise from a recent ad for GoldProfitFormula.com, and, though it turns out it’s not a pitch for a stock this time around, I thought I’d spend a few minutes on the ad — in part because I’m seeing it sent out on a lot of newsletter lists and my delightful readers are asking.

It’s one of the interminable video ads that doesn’t have a handy dandy transcript behind it, unfortunately, but I’ll share a few quotes with you — the narrator is an aw-shucks Texas guy (or voice actor, dunno), and he pitches his story thusly:

“A few weeks ago a young reporter brought me a story that made my B.S.-o-meter ping at 9.5….

“buying pure gold every day for between 30 and 60 cents on the dollar…. using an old loophole he had uncovered 25 years ago in the jewelry business.”

He then spins a tale of going out to visit this guy who “discovered” the jeweler’s loophole, a story that hinges on the lush description of how freakishly wealthy this dude is, including tales of the multi-million dollar home, the pristine golf course, and the uber-fancy cars in the garage.

Which reminds me of one of the old Gumshoe rules: If they put a picture of a yacht or a luxury car in the ad for their newsletter, RUN AWAY.

And yes, there was a picture of the guy’s vintage Lincoln convertible, so you would be wise to consider that whatever service they’re selling may well be propped up on greed without much of a basis in real life … but the narrator’s description of the wealth of our modern-dray Croesus did send the taste buds a watering, just a little bit, so we’re going to try to figure out what they’re talking about for you anyway … even if they did break one of the rules.

If they show a picture of the guy’s young third wife in a bikini, or if he’s at the helm of his yacht, we might just start gagging too hard to continue. So keep your fingers crossed that they’re able to maintain some decorum.

Close one, by the way — the ad mentions the gold guy’s 20-years-younger wife, and his swimming pool and man cave. No more photos or wealth porn yet.

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Then, apparently, in this “man cave” of his, he started to tell his spiel about how he got so stinkin’ rich — after being a failing jeweler in Missouri, he “discovered” how to get people to sell their old jewels and valuables to him at 30-60% of market price when they needed fast cash (that’s the $421 he keeps mentioning — though that’s less than 30% of the current market price by quite a bit, so perhaps the copywriters got this story started when gold was at $1,400? Don’t know, this is the first I’ve seen of it).

And yes, I know, we’ve all seen the big “we buy gold” outfits and the local jewelry stores who advertise about buying gold on your local TV news — apparently this gold expert says that those ads are “just helping him grow his wealth” because they try to “steal” the gold for as little as ten cents on the dollar … “they just piss people off, then they find me.”

So this guy thinks that he’s getting rich buying old gold jewelry because he doesn’t have high overhead (no advertising) and can make just as much profit as the big advertisers without lowballing sellers, and because, unlike cheap employees of the mall kiosks he can “think” and pay more for valuable stuff.

After that, it’s a pretty straightforward story about how someone built a business in used gold — he says he “goes where the money is” by lurking at estate sales and bankruptcy sales, and by looking for divorce lawyer referrals (I’ll admit I didn’t think about the divorce lawyers).

And he said the secrets are “in the math” — partly because most people don’t know how much gold is in 14K gold, for example. And he makes lots of money buying scrap, junk from old computer circuit boards and other harder-to-refine stuff that includes gold and can be bought cheap. “Scrap gold is everywhere,” we’re told.

Which is a similar pitch to Frank Curzio’s spiel about “gold fracking” that I wrote about for the Irregulars last week — with commodity prices high, recycling is at more of a premium, and becomes more profitable.

He also spins a quick “Antiques Roadshow” story about a dozen different items that were bought at scrap prices but later sold to dealers or collectors for massive amounts of money (ie, a rare stone in a silver ring bought as scrap for $11 was worth $3,600). And of course, you can also get scammed by buying fakes.

So what, then, are they selling you?

Well, unlike the normal teasers we usually write about these folks are selling you a “get rich quick” set in a box — some DVDs and CDs that have the transcripts of the “man cave” interview with the gold guy and his “secrets” for building your own scrap gold business, like places to look to buy gold cheap and, one assumes, refiners to use to process your scrap, and presumably other stuff like instructions for how to buy a testing kit and do the little acid tests that jewelers do to authenticate gold.

For this, they’re charging $77.

And while one assumes that the avalanche of folks they’re hoping to sign up would stress the marketplace and raise prices and hurt this “gold guy’s” profits, making it not worthwhile to share these valuable secrets for $77, we should probably also note what most of us are not willing to acknowledge when we look in the mirror: We don’t want to work.

So yes, almost everyone who buys this “secret” course is going to open it up, listen to a few minutes, realize that they don’t actually want another job or time-consuming hobby, and certainly don’t want to take a class, and stuff the DVDs in the back of the closet. I know that’s what I’d do. I am, after all, far too busy blathering away to the good readers of Gumshoedom to befriend divorce lawyers and try to “liberate” their clients’ old gold jewelry at discount prices.

I’m sure there are plenty of ways you could make some money in the scrap gold-trading business — but I’m also pretty sure that if you’re a good enough salesman and have that “wheeler dealer” gene, you’re probably going to do fine in any business. There are hundreds of “cash for gold” websites and refiners that will also teach you how to sniff out gold and give you these kinds of “tips,” because they’re trying to build up the “inflow” into their refining operations and take their cut off the top of the gold that’s recycled and melted down.

If you want the simple math, by the way, anyone with a computer or access to a library can easily get the quickies: The rough numbers are that there are about 30 grams in a troy ounce (gold is priced in troy ounces, not “regular” ounces that we use for everything else); there are about 1.1 “regular” ounces in a troy ounce, and jewelry is almost never pure gold because pure gold is very soft — gold karats are an indication of purity (24 karat is 99% pure, 18 karat is 75% pure, 12 karat is 50% pure, etc., and it’s the pure gold that goes for $1,650 an ounce so, depending on what it costs to refine, 12 karat gold should probably be worth a bit less than $800 an ounce. For what it’s worth, european jewelers often use a percentage number instead of karats when they’re putting little stamps on their pieces, so 999 instead of 24 karat and 750 instead of 18 karat.

Oh, and yes, there are a lot of fakes out there, and probably a lot of fraudulently misidentified pieces of jewelry (ie, stamped with 18K but actually 10K, or gold plated but not gold throughout, etc.) — so sniffing out that kind of stuff is probably a big part of the learning curve, along with finding divorce lawyers and old caches of circuit boards and quiet estate sales. There are a variety of tests that you can do to test gold, including simple stuff like “is it magnetic” (gold isn’t) and “will it scratch glass” (high purity gold won’t), though I’d personally shy away from the “bite test” that you might remember from old Westerns (I’m making my dentist wealthy enough already). And from what I can tell there are a bunch of electronic test machines available now, but for real testing most folks still use acids (acids react to most metals by fizzing and bubbling, but don’t do that with pure gold, and different acids and concentrations can be used to test for different purities and metals). You can get cheap acid test kits for various gold purities for ten bucks or so online.

So sure, if you’re an Antiques Roadshow enthusiast and want to learn more than the basics about testing gold, and build a business by recycling jewelry and circuit boards and old dental scrap gold, feel free to jump in and start reading online — or heck, even spend $77 if you want to buy this particular course or one of the other many such “training packages” that are available out there from various refiners and promoters, but (and I can’t be more clear about this), I’m LAZY, that’s why I invest in stocks, so I can get other people to build businesses and make my money grow while I lounge in a hammock … if I wanted to actually work I’d get a job or start a business doing something I like (OK, so I’ve done that — and I almost never get to sit in the hammock because the little Gumshoes are always trying to use it to kill each other, but you get the point) … I have no interest in trying to compete with the bored and glassy-eyed (and completely un-busy) “cash for gold” guy I see in his little kiosk whenever I am forced to visit our local mall, and I don’t want to have “I’ll buy your gold” tupperware parties and try to rip off all my friends.

So there you have it — yes, you can buy gold for $421 an ounce, sometimes … but you have to find it. And convince them to sell it to you. And make sure it’s real. And send it off somewhere to be refined.

Or if you just like the shiny stuff and don’t want to get your hands dirty, you can always buy pure gold for the market price (I’ve been using GoldMoney lately, and also buy coins on occasion), or invest in a miner who can pull it out of the ground for probably $700-1,000 an ounce in most cases these days, or a royalty owner or streamer (like those pitched by Matt Badiali as “secret gold societies“) who invests up front to buy cheap gold (yes, sometimes around $400 an ounce).

So … if you’re a burgeoning “gold recycler” who uses the “jeweler’s loophole,” feel free to let us know your top secret tricks of the trade with a comment below. And don’t worry, tomorrow we’ll make every effort to get back to writing about something we actually know about.


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martin allen
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martin allen
April 17, 2012 11:43 am

As a jeweler, I can tell you that there is good money in buying scrap gold. It has kept many jewelry stores alive over the past two years. However, the market is saturated with home gold parties, mall kiosks, and every legitimate jewelry store and pawn shop in the country. Usually there is also a gold buying license that you need to acquire AND you need to make a police report of every item you purchase and hold it for two weeks before you can scrap it – that’s the legal way to do it anyway. Oh yeah, are you going to pay in cash?

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fireball
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fireball
April 17, 2012 11:50 am

i owned mfgd for a little while. that was the ticker for cash for gold. i started feeling a little guilty because i knew they were buying from lots of folks that didn’t know better than to sell at those prices so i sold with a small profit. i checked back about six months later and they had been creamed. i haven’t looked again but i was guessing they were actually going under.

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takeprofits
Irregular
April 17, 2012 11:59 am

As usual Travis does an excellent job of exposing the REALITY of highly hyped ways of getting rich. While there is certainly profit to be made in buying old gold as Travis points out, most people who pay for these kinds of promotions will not actually follow through because making the transition from a job needed to pay the monthly bills to a self sustaining new career like this, developing the contacts, learning the details necessary to be successful is simply too time consuming for most, it is certainly not a quick and easy way to riches.

From memory this pitch is part of a promotion for the Palm Beach Letter by Mark Ford who is apparently so wealthy he was able to hire away a former Agora analyst to do most of his leg work for him. An Australian as I recall, and probably as soon as i sign off I will think of his name.

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Wolfgang Sailler
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Wolfgang Sailler
April 17, 2012 12:42 pm

In this pitch the money is not made with the booklet and the CDs. If you proceed to buy, the site wants to sell you all the tools needed as well (scale, chemicals, the works).
Hard to believe that after full page ads in every paper there is any ‘unwanted’ gold left in the populance.

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Jack watts
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Jack watts
April 17, 2012 1:47 pm

you nreed to also be aware of the letters on the piece also. Ss means that the plating is over sterling silver. Gp, gf, or plated mean that the piece is just plated with a thin coating of gold over the base metal. This means that the weight is reduced far enough that the piece is virtually worthless or worth very little.

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Andy
Andy
April 17, 2012 3:28 pm

Gold is gold, and scrap gold can be many other things. If you want GOLD I do recommend my own online gold dealer, Bullion Vault. I have done business with them the past 2 years and always come out on top. They use a foolproof system for dealing online, and BTW have impeccable references. You can choose where to store your gold (NY, London or Zurich), and transactions (buy, sell) are performed in milliseconds.

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rick
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rick
April 17, 2012 8:02 pm

If you google refining gold, or buying scrap gold, there is a huge interest in doing this. The problem I see is that thousands have jumped on this bandwagon, which means it is time to ignore what the sharks are selling you

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English teacher
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English teacher
April 17, 2012 11:03 pm