What does the future of the "cash for gold" business look like? Can those with experience weigh in?

[fournines]

I've been involved in the "cash for gold" business - or precious metals recycling, as I like to call it - for almost three years now. In that time I have owned or co-owned 9 physical locations (mall kiosks and store fronts) where we bought scrap gold, silver, and platinum.

The business has been extremely profitable. I've cleared five figures in a week on a number of occasions... cleared five figures in a day on a few occasions as well.

But I'm starting to wonder if this business is running out of steam and has reached a point where demand is far greater than supply. I'm interesting in hearing thoughts from others in the business as to whether they think it's wise to continue pressing/expanding or just milk what we can until it just dries up completely.

I knew from the start that this business wasn't going to be around forever. We were one of the very first companies buying gold in our market, and there was a huge response from the public. Now, there is someone buying gold on every corner. And there are often 3 or 4 in every mall. With the higher competition, the margins have begun to shrink. In the beginning, we were tripling our money on many sales - now I feel good if I can even double it, and that doesn't happen that often. Many times I will make about a 33% margin.

In addition to the fierce competition, I think a lot of the public is starting to get tapped out - there just simply isn't as much scrap gold out there as there needs to be to sustain this insane rush of new entries into the business. A lot of customers have told me, "I sold most of my gold a few months/years ago, I wish I had more to sell."

Just wanted to put my thoughts out there and see what others in the same business may think. I'm really torn between aggressively investing and expanding next year, versus looking for other ventures and start letting this business go.

Any thoughts on the future of the business are appreciated.

[jrockfl]

You have been in the business for 3 years now, so you should know which direction things are going right? Are sales going up or down?

I'm in Florida too and I still see those business popping up everywhere. I would try and be diversified and maybe start looking at other businesses too.

[fournines]

Just because they are opening up doesn't mean they are all profitable, or at least that they will be nearly as profitable as in the past. In some areas, the competition is manageable. In others, it is absolutely beyond belief.

Revenue is also a poor indicator of health in this business because the prices of precious metals fluctuate - when I first began, gold was $850. This year it briefly surpassed $1900. So $1m revenue in 2009 vs $1.5m revenue in 2011 would actually indicate a downward trend.

[daveb1]

Hi fournines,

Sweet business you are in and I am sure you have learned so much about precious metals. Its sounds like you answer your own question as most of your original post talks a lot about tough competition and and lack of supply / customers. These indicators would seem to point towards the business slowing down or getting more difficult to sustain. What other businesses / skills would you thing about deploying if you let the gold business go? As you know gold is also going down a lot lately ($1595 when I checked today). Do you think this trend will continue? You sound like yo have a lot of experience so keep us posted on what you decide and more insight into the industry would be cool as well. Like why such a high turnover on the shops / locations that you have owned? Also how hard is it to build a location and then flip it for a profit. Best of luck in the gold business!

[fournines]

Precious metals are still trending down (yesterday I locked in a price to sell 30 ounces of gold and 800 ounces of silver at $1590 and $28.70 respectively, today they are currently at $1558 and $27.16) with more room to go.

A lot of damage was done recently, mostly from stop loss selling, Fed not initiating another round of QE, and the Euro faltering which makes the dollar stronger (hurting commodities against the dollar). So metals will probably suffer for a couple months or more. But eventually the US dollar is going to get what's coming to it, and gold/silver will skyrocket against. I don't think $2500 or higher is an unreasonable figure for a couple years down the road - if it even takes that long.

I haven't closed any of the locations I've owned or co-owned. I started the first one with a partner. When we got to three, I really wanted to move away so we split the business up. I took 2 of 3. My dad took those over under a profit sharing deal when I left. He owns them fully now. I started a 4th location with him later but my profit sharing on that is over now too. I also had a profit sharing deal for a year on 3 locations I started in another state. My dad ended up opening a fifth location, my original business partner now has SEVENTEEN, and my stepbrother is about to open his fifth.