It’s a pretty common understanding that pawn shop deal with gold. Some people might even say that pawn shops are known for dealing with gold and gold jewelry on a regular basis.
The fact is that pawn brokers have been buying and selling gold since they were first started. Gold is just one of those things that pawn shops love to work with because it has intrinsic value unrelated to it’s condition, age or time of creation.
So with that in mind you might be asking yourself what kind of spread most pawn shops build into their business as far as the price difference between when they are buying gold versus when they turn around and sell gold.
The truth of the matter is that there is no one universal answer that applies to all things. Some gold jewelry has diamonds in it that can greatly affect the price spread for pawn brokers as well as of course their individual preference for the items in question.
But with that in mind, most pawn shops are really pretty reasonable about the prices that they pay out on gold jewelry and of course they are always a great value when you are looking to buy some for yourself.
There is a different set of prices for when gold is bought and sold at pawn shops but once you understand the math you will see that they are actually very reasonable.
How They Typically Pay For Gold
When pawn shops buy gold, most of the time they are going to pay between 50-70% of the spot price of gold, or at least something very close to that.
The can’t afford to pay 100% of spot of course because in order for them to turn around and get money out of the gold scrap that they sell they have to refine it which of course comes with it’s own costs, fees and taxes associated with that as a service.
In addition, when a pawn shop makes a loan on an item, any periods of unpaid interest become an additional cost associated with the item(s) when it forfeits. So if the item you bring in is worth $100 in it’s weight of gold and they paid you $100 for it, after 4 months when it forfeits, it would then have an actual cost of $136 – or $36 more than it’s worth!
So with that in mind, that’s the reason that pawn shops can’t pay you 100% spot price for your gold. However, if they paid you closer to 50% (or $50) and it forfeit in 4 months, it would then cost them $86. Then since refining the metal costs them in fees as well, they might actually only get $90-$94 out of the item.
In other words, what they paid you $50 would only net them a $4-$8 profit, which is not very much at all. However, that’s how pawn shops operate when they are buying gold and it’s also the reason that they just can’t afford to pay you 100% of what the scrap value says it might be worth.
How They Typically Sell Gold
Now, in the above example we had looked at the pawn shop paying roughly $86 for an item that has an approximate gold value of $100, or about $92 if it had to be sent to a smelter.
Instead of sending the gold off to be refined, if the item happens to be a nice piece of jewelry that someone might want, the pawn shop can turn around and sell it on their sales floor instead.
In these cases, the markup still isn’t very high normally. Typically speaking, most pawn shops will charge roughly 20-30% over the spot price of gold as their retail price for a piece of jewelry. That means that the item in question might be put on their sales floor for between $120 and $130.
Now obviously, this is pretty good news for you if you are currently on the market to buy a nice piece because you already know that they probably have some room to negotiate in their price. As long as you offer is reasonable and definitely not under the spot or melt value of the metal, most pawn shops are happy to work with you a little bit.
What’s a reasonable offer you ask?
Well taking the same piece of jewelry that we’ve been using as an example, a reasonable offer would be between $110 and $115. Yes, that is a little over spot value but you are almost always going to pay over spot no matter where you go or who you buy from – and if you go to one of those big box mall-style jewelry stores, well then you might pay as much as 2 or 3 times the spot value!
So hopefully that has given you some insight as to the difference between the price that a pawn shop will buy gold for versus the price that they will sell it for. It’s really pretty easy to understand once you sit down and look at the numbers and really, pawn shops and pawn brokers are very reasonable people who are happy to work with you if you are selling or buying gold.
