Cash-for-gold is a con so dodgy that it's visible from space, but Clancy Martin's inside account of working in his brother's rip-off high-class Texas pawnbroker is an especially compelling view of the internals of the ripoff.
I’ll tell you how it’s done. Let’s say you have a fourteen-karat gold ring that weighs fifteen grams, or about half an ounce, and gold is at one thousand dollars an ounce. First you weigh it and show the customer that it’s fifteen grams. Then you take the price of an ounce of gold and divide it by thirty-one to get a gram price for pure.
“Now we multiply that by fourteen for fourteen karat and divide it by twenty-four for twenty-four karat, which is what it would be if it were 100 percent gold,” you explain to the seller. “That gives us the price for your fourteen-karat gold. Multiply that by fifteen, for fifteen grams. Now, fourteen karat is 56 percent gold and 44 percent base metal, which burns off at the smelter, so we multiply that by 0.56. Finally, we deduct 10 percent for the smelter, and 15 percent for my profit. Most gold buyers will charge you 20 or 25 percent, which is a reasonable profit margin, but we do such high quantity of gold-buying here that we can afford very low margins. That gives us a final figure of…”
You get the picture. The customer’s ring is worth $280 in real gold value. But you just offered $120, with a seemingly sound mathematical justification. And you’ve left yourself plenty of wiggle room if they want to haggle your profit down from 15 percent to 10 percent or even 7.5 percent. The real key to this scam is that you’ve deducted for the impurity of fourteen karat not once but twice: first, when you calculated the per-gram price and again when you “deduct for the base metal.” Furthermore, your smelter will charge you at most 5 percent—often less, depending on the quantity—and if it’s a nice piece you’ll never melt it down anyway. You’ll send it to your jeweler to make it look brand-new and put it in the showcase for retail. The key, as with my diamond buy back at Fort Worth Gold, is not to let them leave your office. And you do that by staring them in the eye and lying: “No one will offer you a better price. That’s the reason you’re here. Everybody knows we pay the highest.” Hold the customer’s gaze until they look away. Push their jewelry toward them, as though you really don’t want to buy it. Ninety-nine times out of a hundred—
especially if you have a luxurious, busy store—your customer will wilt. The fact is, they’re already weakened: that’s what they’re doing in your store in the first place. They need the money. It’s not quite stealing gold fillings out of the pulled teeth of weary soldiers, but it’s the same principle. Use your expertise to exploit the weakness of someone who doesn’t know any better, and do it in a situation in which he believes he has reason to trust you. Why would a wealthy diamond merchant in a three-thousand-dollar suit want to cheat me out of a hundred bucks’ worth of gold?
We Buy Broken Gold [Clancy Martin/Lapham's]
