The pitfalls of selling gold for cash

Monday, 15 November 2010 12:00

by Ben Salisbury

The price of gold has been on an upward trajectory for the last 18 months and has tripled in value over the last three years.

Last week, the price reached another record high, at $1,387 per ounce, and many analysts expect it to reach $1,500 in the next few months.

Why is the value of gold continuing to rise?

There are a number of different reasons why the price of gold is rising so consistently. Some experts believe that its value will continue to rise because of continued demand in the future from emerging investors in countries such as China, India and Brazil.

With the relative weakness of major currencies like the pound, dollar and euro, investors are buying gold as a short-term hedge against the risk of deflation or inflation of currencies. With a continuing policy of quantitative easing from the Federal Reserve in America, likely stimulus packages for the euro-zone and the possibility of more radical economic measures from the Bank of England, the value of currency is likely to weaken. This helps to make gold a good bet at the moment.

This wider economic scenario is contrasted with heightened activity in the UK as individuals cash-in and sell their personal supplies of gold at a historically high market price to help their own finances during the recession.

What is likely to happen next?

The likelihood is that during the next year, the price of gold will retain its value and quite possibly reach the $1,500 per ounce mark.

This is because the global economy and the strength of the three main western currencies – the dollar, the pound and the euro – are unlikely to improve substantially, and there is a short-term risk of deflation in the economy and a longer-term risk of inflation.

Theoretically, you will be likely to get a good price if you are thinking about selling gold now or next year, and there is also a reasonable chance that you could make some gains next year if you buy gold now.

Let's take a look at a possible scenario that could apply to many people in the UK at the moment. This individual, who has a medium-sized mortgage, has a low amount of savings and is reasonably worried about their job security next year. They own valuable gold jewellery and have some other gold that they could sell. They are holding it as security to sell should the worst happen, and they do lose their job in 2011. So, what are the options if you need to sell quickly?

Selling gold to postal companies

Adverts offering to buy your gold at a top price have been a very common sight on TV and in magazines. Unfortunately, many of these companies do not offer competitive prices and their promotional claims of offering top prices are simply not true.

It's easy to find tales of customers being offered little more than 20 per cent of the real value of the gold, and around 50 per cent of the value is pretty common. Of course, there are many different companies operating in the market and some are better than others, but this area of the market does not have much regulation, so you need to pay careful attention to which company you use.

How it works

The normal method for selling your gold to a postal 'cash for gold' company is that the company sends you a pre-paid envelope, and you send them your gold. The pre-paid envelope should be insured up to a certain value to keep it safe when you send back your gold.

The company will usually call or email you, giving you an offer price of what they're willing to pay for the gold. Some companies just send you a cheque for their valuation. I think this is cheeky and they try to play on the fact that now you have the money, you will be loath to return it, even if the price for the gold isn't great.

However, you have the right to accept or reject that offer. If you are not happy with the offer, let the company know within the specified timeframe (check the small print as each company operates differently). When you return the cheque, the company is legally obliged to return your gold, again within an agreed timeframe.

Choosing the right company

Choosing the right company is vital, so do your research. Try looking at a forum on the subject and finding out about other people's experiences. When looking at an advert from one of these companies, check what price they will pay per gram or ounce of gold.

If you can't find the information, phone the company up and ask. If they don't give you a straight answer the chances are the offer won't be good. There are plenty of these companies so compare them to find the best deal. If possible, try and get an assessment from a company linked to the London gold fix.

If you are able to get above 75 per cent of the current world price, you will have done pretty well. If the offer is below that, you should try somewhere else or, if you can afford to, wait and see what the market does over the next few months.

Also check for any hidden charges. These vary from company to company but can take the form of postal charges, charging to send your jewellery or gold back if you don't accept their offer or a charge for testing the quality of your gold.


Rather than running the gauntlet of 'cash for gold' postal companies, you could try the high street options. Pawnbrokers are the traditional form of selling valuables, with the added bonus that you have the chance to redeem precious items if your finances improve. Some high street jewellers buy gold or second-hand jewellery and this can be a better option.

Buying gold

If you are in the market to buy gold, you can buy it in the form of gold bars or coins from governments across the globe. UK investors usually go for Sovereign or Kruggerrand types. Sovereign coins are produced by the Royal Mint, they look good and are relatively easy to sell on.

Kruggerrand are one-ounce bullion coins from South Africa. They don't look as good but you do know how much gold is in the coin and they are usually a bit cheaper. If you are buying bullion coins make sure you do so from a reputable dealer.

Gold is also traded in the form of securities as regulated financial products called exchange-traded funds. The values are linked to gold prices and can be traded, bought or sold on stock exchanges around the world. If you are thinking of trading in gold on the stock market you should take advice from an independent financial advisor.

Buy and sell gold from a reputable company, Hatton Garden Metals, here

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