Selling Gold Is Not As Easy as it Seems

"Costco made buying a gold bar as simple as tossing it in a shopping cart. Selling it is a lot more complicated.

Adam Xi, 33 years old, called five different dealers to get a price he could accept for the gold bar he bought at Costco in October.

One dealer offered him $200 less than the $2,000 he had paid. Taking such a loss would thwart his plan to rack up credit-card points buying the gold and then quickly reselling it. He kept at it, and eventually found a local coin dealer near his home in Philadelphia willing to pay $1,960, or $20 under market price.

Costco shoppers are spending as much as $200 million monthly on gold, according to a Wells Fargo estimate. They are part of a new wave of gold buyers, who have taken an interest in precious metals to protect their wealth against inflation and economic disaster.

When it comes time to cash out their investment, many are learning a hard truth: Gold isn't the most liquid asset.

Costco won't buy back the bars or accept returns. Gold changes hands through online and storefront dealers that charge fees or only buy at discounts to market prices.

Online retailers, refineries and local shops in New York City told The Wall Street Journal that they would typically offer between 1% and 5% less than the market price for a generic 1-ounce gold bar like the ones sold at Costco. None offered at or above market value.

"It's not like trading stocks," said Lark Mason, a New York-based appraiser. "There's a friction between what you pay and what you actually get."

Gold is typically a buy-and-hold investment used to store value through economic ups and downs, like inflation. But after a more than 15% rise in gold prices this year, more sellers are showing up to unload their bars and jewelry, precious-metals dealers said.

In March, customers at online buyer JM Bullion sold twice as much gold as the monthly average, Chief Executive Robert Pacelli said.

There are more than 1,700 bullion dealers in the U.S., according to Bullion Directory. That doesn't include jewelers, refineries and other nonspecialized shops that buy gold. Dealers will make offers based on the current spot price, which fluctuates throughout the day depending on supply, demand and futures contracts.

As more sellers try to reap profits from rising gold prices, some dealers say they are less inclined to make competitive offers. When asked about gold bars, a Money Metals Exchange representative said they had so many in inventory that they had lowered their offers.

Selling gold online has additional costs. Shipping fees can be as much as $40 for an ounce of gold, according to JM Bullion. Insurance on that shipping is another $40 for a $2,000 gold bar, per the U.S. Postal Service.

Profits on gold held longer than a year can also be taxed at a higher rate than other long-term investments. The Internal Revenue Service typically treats gold as a collectible. This means the capital-gains tax rate can be as high as 28%. The highest rate for a stock investment would be 20%, according to the IRS. These rates don't include the additional 3.8% surtax for high earners.

Investors can expect their gold to immediately lose around 5% of its value, said Tom Graff, chief investment officer at wealth advising company Facet. This is due both to the premium buyers pay and the fees needed to resell it.

Gold investors depend on price appreciation to recover those costs. Though prices have been climbing lately, they haven't historically risen with the same consistency as stocks. "You need a holding period that's long enough to overwhelm that cost," said Graff of Facet.

Pawnshops and bricks-and-mortar bullion dealers are the primary options for face-to-face deals. There are also hundreds of online retailers of varying sizes and reputability. Sellers can also sell directly to peers through platforms like eBay, Facebook Marketplace or Reddit.

Luke Greib, of Southeast Michigan, waited almost a decade to make a profit on his gold bar. He sold his 1-ounce Credit Suisse bar for $2,350 in April after paying $1,500 for it back in 2015.

He didn't bother with local shops, which he believes lowball sellers. He compared offers from a range of online retailers. He rejected those, too.

Instead, he sold the bar to someone he found on a Reddit page dedicated to trading precious metals. He received the payment via Zelle, without the tax or other fees associated with many third-party sites.

"If you research online, you can get a better price," he said." [1]

1. Selling Gold Is Not As Easy as it Seems. Hamilton, Katherine.  Wall Street Journal, Eastern edition; New York, N.Y.. 22 Apr 2024: A.11.