Gold Shops: How Do They Make A Profit?

[abcd22]

Today in Royal Garden Arcade I watched and listened as a 'teelac' briefed her farang on the price of gold. Outside the shop is a big sign Buy 13,400 Sell 13,500'

That 100 baht represents less than 1% of the sales price.

Can a shop really exist by buying at 13,400 and selling at 13.500?

If the price rises, customers will bring back their purchase and take a profit. If the price falls, the shop has bought in stock at more than its current value.

There must be more to it than that. Can someone in the know, explain how the many, many gold shops in Pattaya and elsewhere actually make a profit and survive?

Edited May 14, 2008 by abcd22

[lopburi3]

That is not the selling price for finished work. But that price is high as today Bangkok price is 13250-13350.

Add work fee of about 500 baht (or more) per baht weight to the selling price.

[abcd22]

That is not the selling price for finished work. But that price is high as today Bangkok price is 13250-13350.

Add work fee of about 500 baht (or more) per baht weight to the selling price.

Thanks. OK. I think I see. You are saying that a one baht necklace will actually cost the days gold price plus 500 baht (or more) for work done.

If you return it at the same daily price, then presumably you lose the 500 baht work cost. But even then the shop has only made a margin of 600 on a sale of 13,500 ie 4.5%.

My experience of retail pricing included mark ups of at least 50% to give a 33.3% working margin.

So if they can exist on such small margins, how do they cope with rising and falling gold prices, over which they have no control?

[Thaddeus]

So if they can exist on such small margins, how do they cope with rising and falling gold prices, over which they have no control?

Another source of income the have is with the loans that they provide with gold kept as security.

Loan repaid = Interest made.

Loan defaulted = gold not returned and resold.

[Firefan]

As mentioned they have several income flows.

The small bid/offer spread between the actual gold prices is still a healthly profit for doing pretty much nothing. With a constant flow of buys and sells during the day that is pretty much "free" money - what a stock broker does too. In comparision my broker charge $10/flat fee per trade and not 1% but they still manage to earn money too!

Cheers!

[ralph444]

try going back to the seller where you purchased something, you gonna say is that all you gonna give me......lol.

sell to farang and buy back from girl. spread is huge. but all winners in trasaction. farang feel good, shop and girl make money!

Edited May 14, 2008 by ralph444

[naka]

Buy one day and sell in the same shop the next ... Expect to loose 10% or more regardless of

the buy price in the window.

Naka.

[steveromagnino]

Buy one day and sell in the same shop the next ... Expect to loose 10% or more regardless of

the buy price in the window.

Naka.

???

sell at the sell price plus make a design fee... Buy at the buy price from either public or from the gold wholesalers.

0% wastage. 0% spoilage. No need to ever discount - just remelt and make into something else.

Profit when entire inventory value increases (as gold increases in price).

Not a bad business, fairly cash intensive, but with decent daily turnover, you get multiple turnaround no inventory.

Why is it only people with Chinese blood can understand this very simple business model?

[Firefan]

Naka; can you clarify what you mean? The bid/offer prices are clearly stated, and as long as no design fee involved (for making jewelery) then my understanding from friends is that the bid/offer price is the actual price/payment? Is that not the case? Cheers!

Buy one day and sell in the same shop the next ... Expect to loose 10% or more regardless of

the buy price in the window.

Naka.

[A_Traveller]

Indeed if a gold shop does not pay the correct price by weight then they can be in serious trouble. What is often ignored though is the make fee which forms part of the retail price. the more complex the design the greater the fee, so if the chain is 2 baht weight and has a complex design the make fee could be 10 or 15% of the retail price. The make fee is lost when one attempts to resell to a shop since they will, in most cases, only pay by weight, even though Thai gold is not 24k {the statute permits, if memory serves, down to 23k or slightly less to be sold as 'pure'.}

Regards

Edited May 15, 2008 by A_Traveller

[Firefan]

This is the biz board and not the "pimp me up"-board

Can one not buy non-design gold (be that a bar/coin/lump whatever) at the listed price or will there ALWAYS be a design fee on top of the gold price?

Cheers!

[A_Traveller]

The red shops will always have a premium, direct gold purchasing may have a structural fee.

Always prefer to deal in HK with gold rather than here, there 24k is much closer to assayed position, though of course one could go for 999.99 {say JM} foreign ingots

Regards

[Samuian]

..... Thai gold is not 24k {the statute permits, if memory serves, down to 23k or slightly less to be sold as 'pure'.}

it's is 96.5% very close to 24k! Rings can be as low as 94.5%

there is so called "swiss-gold" ornament 99.9%, but sold at very inflated prices, should be bought as present only!

One "loses" 3.5. % on purchase as the price is usual the day price per ounce, the baht weight is slightly below that of 1/2 an oz (15.244 g), it is only a common thing in T. to buy gold ornaments as a security which can be made into cash anywhere in the country, on top one can show off!

Anybody serious in investment will buy (as part of an portfolio) non-ornamental gold (bars etc.)

"The baht is also a unit of weight for gold, commonly used by jewellers and goldsmiths in Thailand. One baht = 15.244 grams. Since the standard purity of Thai gold is 96.5%, the actual gold content in one baht is 15.244 × 0.965 = 14.71046 grams, or about 0.4729523 troy ounce. 15.244 grams is used for "raw" gold or bullion; in the case of jewellery, 1 baht should be more than 15.16 grams."

-from Wikipedia-

but then not to forget:

"Gold futures drop as much as $24 on dollar strength - 13 May 2008"

and a day later again 19US$!

"METALS STOCKS

Gold futures drop over $19 in three sessions

Tame U.S. CPI data helps provide a dollar lift, luring interest away from gold

By Myra P. Saefong & Polya Lesova, MarketWatch

Last update: 4:47 p.m. EDT May 14, 2008

PrintPrint EmailE-mail Subscribe to RSSRSS DisableDisable Live Quotes

SAN FRANCISCO (MarketWatch) -- Gold futures closed lower Wednesday taking the metal's three-session loss to more than $19 an ounce after the Labor Department reported that U.S. consumer inflation moderated in April

Gold for June delivery fell $3.10 to close at $866.50 an ounce on the New York Mercantile Exchange. It touched an intraday low of $864. The contract has now suffered a drop of $19.30, or 2.2%, since the end of last week."

from:

Edited May 15, 2008 by Samuian

[naka]

Naka; can you clarify what you mean? The bid/offer prices are clearly stated, and as long as no design fee involved (for making jewelery) then my understanding from friends is that the bid/offer price is the actual price/payment? Is that not the case? Cheers!

Buy one day and sell in the same shop the next ... Expect to loose 10% or more regardless of

the buy price in the window.

Naka.

I've had a bit of personal experience with this. The problem is that the re-manufacturing cost

is whatever they say it is ... And will they really re-manufacture it anyway

or just give it a bit of a polish and put it in the showcase ?

You could always buy a 1/4 Baht chain at (Buy 13,400 Sell 13,500) for 3,375 but

I'm darn sure they will not give you 3,350 for it if you wanted to sell it back to

them the next day.

Naka.

[torrenova]

I've seen a shop in Pattaya lend more than they would buy it for !

As stated above, the way they screw you is the fact that what you are buying is not what you get (% and weight wise) and thus they only pay you the real amount on trade in.

The vast majority of Thais have no understanding of this and just accept whatever they are given.

[MISTERBONK]

The buy/sell price displayed in gold shops, usually with a 100bt difference if the price for raw gold (ingots). Jewellery carries a making fee of between 400/600bt a baht weight usually.

When it is time to sell the gold, not only is the making fee discounted but the offer price is lower than the ingot price, and there is also a 5% tax payable (only when selling)

For daily prices see http://www.goldtraders.or.th/index_en.php

[Samuian]

I've seen a shop in Pattaya lend more than they would buy it for !

Objection, sir!

For which reason in the world would they give more then it is worth?

As stated above, the way they screw you is the fact that what you are buying is not what you get (% and weight wise) and thus they only pay you the real amount on trade in.

The vast majority of Thais have no understanding of this and just accept whatever they are given.

Again, Objection!

I have been in the trade of producing precious metal ornaments back in the "real world", here it is just the same. You cheat on the Gold ratio given, you lose your hallmark and the right to EVER trade in precious metals again.

Same, same here!

the % of interest is very high, the top up on the items sold, is what makes their income!

And occasionally, the fluctuation of the world market price.

Besides Thais would never consider "Western Gold" as Gold, cause it's genuine value is so much lower then this of Thai Gold.

Just look at the completely overpriced Diamond cartel, it's after all only allotrope crystalline carbon and will burn in a fire!

[Heng]

So if they can exist on such small margins, how do they cope with rising and falling gold prices, over which they have no control?

Another source of income the have is with the loans that they provide with gold kept as security.

Loan repaid = Interest made.

Loan defaulted = gold not returned and resold.

They do great volume, but even then it's hard to beat any business with interest as a profit engine. 1-1.25% per month. Even if the loan is paid back anytime within 3 to 30 days, it's still 1.25%. That means when people pay back their loans ahead of schedule, the same funds are again available to be lent. So you can loan the same funds out 10 times during the same month for a 1.25% margin. You do the math.

[johnnyk]

The gold shops are Chinese-owned and if there wasn't good money to be made they simply wouldn't be bothered.

[Samuian]

The gold shops are Chinese-owned and if there wasn't good money to be made they simply wouldn't be bothered.

...and so are the Pawn Shops...

[Heng]

[mikemellow]

Gold is up and so are the entire inventories of these gold shops. Gold shops have seen their inventorys triple in value over the last 5 years or so. These shops are riding a wave and they are all popin the corks. we should all be so lucky to have our wealth triple in a few short years (not counting what they made day to day on the buy/sells) Just go into a gold shop and ask the owner how is business------just read his face and you will understand. they can't hide their smiles.

[realmadrid25]

so gold shops can give out loans? can any thai open a gold shop or are there a limited number of licenses?

[realmadrid25]

Thais just love that bright yellow gold. You will even see farang wearing it.

5555

[guava]

I've seen a shop in Pattaya lend more than they would buy it for !

Objection, sir!

For which reason in the world would they give more then it is worth?

I'm not saying this happens or not - I don't know, but it seems very feasible and extremely likely it does.

A loan is a loan - the lender assesses the risk on a case by case basis, sets an interest rate, lends the money, and makes a tidy profit on the interest. Sure, the lender likes to have as much security as possible, but I can think of many examples of a lender lending more money than is covered by security. Some people default, but they make money overall or they wouldn't do it.

[AlexLah]

Asked in Central Plaza the price of gold bars.

They charged 200 Bath commision (Per Bath Gold).

Went to China town and it was 100 (PBG).

[johnnyk]

Some locations are more exensive to rent/buy.