Shoppers buying gold jewellery in Dubai. Image Credit: Antonin Kelian Kallouche/Gulf News

Dubai: Selling gold bars at the best price is not an easy task, because every buyer makes some profit due to price fluctuation, which happens every second. This can happen even if you choose a reputable buyer of gold to get the maximum value against your gold coin or bar.

Every time you look to sell your gold, you may take your gold to a reputable buyer or where you bought it from and ask them to estimate its value. But it’s possible that you may not be getting the best possible value when you do. It often does boil down to how quickly the value of gold fluctuates, but not always.

Every time you purchase any gold, you need to also keep in mind that the purity is of vital importance when it comes to buying it for investment purposes. This ensures that you are getting your money’s worth, and places you in a better position while selling your gold to a reliable buyer.

However, before we dive deeper into the answer as to why we often get a lesser price when selling gold, when compared to the amount you invested when buying the yellow metal in the first place, let’s first look at some of the indicators that determine the buying and selling price of gold.

Indicator #1: Inflation

Gold prices have a direct relation with inflation. When inflation is more, as it is now worldwide, customers tend to buy more gold to hedge them against inflation. As a result, when inflation increases, gold prices go up and vice-versa.

Indicator #2: Gold reserves held by the government

Every government worldwide maintains the balance between currency and gold reserves. When a central bank starts holding gold reserves, the cash flow in the market increases while the supply of gold decreases. As a result, the price of gold goes up.

Indicator #3: Global movement of gold prices

Whenever there is any price fluctuation because of any global happening or major market event, it affects gold prices.

Indicator #4: Effect of interest rates on gold

In any country, the current gold prices are an indicator of interest rate trends. When the interest rates are high, people tend to sell their gold and convert it into cash. This increased supply reduces the price of gold. And when the rates are low, people start investing in gold. This high demand raises the prices.

Indicator #5: Change in market demand

There is always a massive demand for gold jewellery, especially in the UAE and India, particularly during any festive season. Gold prices increase during these times.

Why is the selling price lower than the buying price when it comes to gold?
Partly because of the reasons mentioned above, gold prices constantly fluctuate and do not remain the same for an extended period of time. Other broader reasons for price fluctuations are:

• Demand and supply dynamics
The gold mines worldwide produce a fixed amount of gold per day. So, while the supply is more or less constant, the demand for gold is not. During festivals, wedding seasons, and on special festivals, the demand for gold goes up. This imbalance is why gold prices go up during these periods.

• Price speculation on the market
Another reason for variation in gold prices is market speculation. The market is always agog with speculations regarding the policy of governments and central banks. The investors keep speculating about various possibilities and act accordingly – affecting prices in the process.

• Psychological reasons
Most often it is observed that people hold onto gold and do not sell it unless they are in need of money. There is this psychological fact that primarily people sell gold during distress or need, and at that time, they are not in the best position to bargain.

This is why gold prices are always volatile. They may go up or down. That is why, when people want to buy gold, they pay a higher price, but when they decide to sell it, the gold selling price is somewhat lower than the gold-buying price for that day.

Gold, jewellery, gold ornaments
Why gold retailers refuse to buy your gold at the current market price?

Why gold retailers refuse to buy your gold at the current market price?

With gold you have numerous companies that produce essentially the same thing. Let’s assume a 1 ounce gold bar at the moment. Regardless of who produces them, they all have the same components.

They are all going to be 1 ounce of .9999 pure gold. They will all be stamped with their weight and purity. They will all be in a tamper-proof package with a serial number and assay (quality) certificate.

Because of countless competition, the wholesale cost to purchase these bars ‘new’ is quite low. When a dealer is purchasing them ‘used’, the retailer is taking a certain amount of risk as to damage (or wear).

Additionally, as the retailer can buy them ‘new’ for a very small amount over the spot market price, the retailer’s bid for ‘used’ bars will typically be under the global spot price.

When you go out to make a sale of gold coins or bars, be it 24-karat or 18-karat, the buyer has to make some profit and take into account the price fluctuation, which happens every second.

Also, if he is buying a lower karat bar from you, he has to refine it, which is another cost he has to add before the makes a marginal profit.

If he had bought a 24-karat bar, he has to assure that the price had some difference to let him cover the cost of holding onto it and make some money in the process.

The only way then, veteran market investors opine, to get your full investment back is to invest in digital gold or have gold bonds or gold-linked exchange-traded funds (ETFs) in the banks. But, keep in mind that at the end of the day you will still pay some fees to the bank for the process of buying and selling.


An ideal illustration of why gold may not be the best investment always

Let’s say you bought a gold coin. Let’s check why it may not be easy to sell the gold coin back and get the same amount of money you put in, in three months for instance?

It is virtually certain you will lose money unless the price of gold goes up markedly. Most dealers operate on a Buy/Sell basis.

How do gold retailers or dealers operate on a Buy/Sell basis when it comes to trading gold?
Gold like any other commodity is tradable based on its buy-sell spread (difference between prices). The spread changes on the basis of various factors including price volatility, supply, external market conditions and etc.

So here’s how it may unfold for you. Let's say that hypothetically gold is selling at $1,000 (Dh3,673) per ounce. The dealer will not sell it to you for $1,000 (Dh3,673), but at a sell price of, let's say, $1,100 (Dh4,040). How much ever you haggle, the retailer’s not going to sell it to you for $1,000 (Dh3,673).

Now it's time to sell. Gold is still hypothetically priced at $1,000 (Dh3,673). You go in to sell to a dealer and they only offer you $900 (Dh3,305). Although you can justify saying you paid $1,100 (Dh4,040) for it when it was $1,000 (Dh3,673) per ounce, the dealer will cite the same reason – costs.

That's the retailer’s ‘buy’ price. In both of these instances, if the dealer bought and sold for the actual commodity price, he or she would make no money.

And therein is the problem with buying gold as an investment. For each ounce you held in that example you’ve lost $200 (Dh734). Was that a good investment? Your negative return of investment points to it being otherwise.

Gold coins, gold bars
Every country has government-issued gold coins and bars that will be most popular with their buyers.

Most sought after gold coins are those minted by governments: A better alternative?

Every country has government-issued gold coins and bars that will be most popular with their buyers. These have increased in popularity because governments guarantee their purity and metal content.

This is true in the UAE as it is in other countries. Dubai has several renowned companies that produce gold bars as well, with the Emirate becoming renowned for the high-quality production of gold.

In recognition of this, the ‘Dubai Good Delivery’ benchmark represents the globally accepted standard for 995 or higher fineness when it comes to one kilogram gold bars.

Understanding the purity of gold: 995s and higher, what does it means?
995 indicates 995 parts of gold and five parts of another metal. A ‘999.99’ or ‘five nines fine’ is the highest quality of fine gold. 22-karat gold that is typically used in making jewellery has a fineness of 916.

999 gold refers to the purest form of gold (24-karat), with a gold content of 99.9 per cent that is not mixed with any other metal. As such, it is extremely soft, which means it is more likely to bend and warp easily.

In the UAE, the most sought after government-minted gold coins are Emirates Gold Bars, Al Etihad Gold Bars, with retailers also noting how overseas minted coins like the American Gold Eagles, Gold Buffalo, Canadian Gold Maple Leafs are also in much demand among residents. Let’s look at them in detail.

American Eagles

The longest running US government gold coin is the ‘American Gold Eagle’. It remains one of the two US minted gold coins currently, besides the Gold Buffalo.

The minting of the Gold Eagle coins began in 1986. The standard sizes come with a full ounce of their respective precious metal.

Dubai residents can buy them in smaller sizes of a half-an-ounce, quarter ounce, or tenth of an ounce. The US government guarantees their purity and metal content.

These coins are all legal tender (government-backed or government issued) with face values that range up to $50 (Dh183) for the one ounce gold coin denomination.

Canadian Maple Leafs

Multiple Dubai-based gold retailers also consider ‘Canadian Maple Leaf’ gold coins to be extremely popular in the Dubai emirate. These pieces in gold form come with .9999 fineness of gold, making them among the purest in the world.

They are also popular for their anti-counterfeit properties. This is a micro-engraved state-of-the-art security mark in the form of the number ‘14’, which assures buyers that they have a genuine gold coin.

As with the American Eagles, the Canadian Maple Leaf coins are issued in uncirculated condition. The history of this gold coin goes all the way back to 1979, making it among the oldest of gold bullion pieces.

Despite the age, it remains highly popular. While the obverse (front side) features the trademark Canadian Maple Leaf, the reverse (rear side) bears the portrait of Queen Elizabeth II of the UK.

Emirates Gold Bars

Dubai has enjoyed a key role in the worldwide bullion market for centuries for being a gold producer. Emirates Gold is the largest gold refiner in Dubai and the UAE. Researchers add that the country also has the distinction of being the best known precious metals refiner in all of the GCC.

Based in the Emirate, the company was established in 1992. The firm currently processes 200 tons worth of gold every year. The gold bars it produces range in size from only one gram on up to an ounce and kilogram bars. It employs a famous rose design that graces the front of many of its bars.

Al Etihad Gold Bars

Al Etihad gold bars have older roots that date back to the late 1940s. It was at this time that the Khalaf family from Bahrain started the gold souks in Dubai. They subsequently established the Al Etihad gold bar brand and company in 2009.

In the past decade, it has developed into what is now among the fastest growing and biggest gold refineries in the Middle East. Their gold bars range in size from 100 grams on up to full kilogram ‘Dubai Good Delivery’ bars.

Government-issued gold coins and bars may offer a better alternative
When contrasting gold coins and bars that you get elsewhere, with products like the government-issued or minted gold coins or bars, there is only one place where you can purchase these products new – which differs with each country.

If the dealer wants to sell this item, he has to pay whatever premium the government charges. This premium will always be more than what private retailers charge for their gold coins. This also applies to most government minted coins.

There is also the demand for each specific product. When business is slow, gold bars don’t sell nearly as fast as government-issued coins. This means the dealer will have to sit on excess inventory, so his bid will be less.
gold bar
Here's why gold may not be the best investment for you always.

Bottom line: Why gold may not be the best investment for you always

You are often encouraged to own the precious metal as part of a diversified long term investment portfolio as gold is seen as a hedge against inflation and a store of value through thick and through thin.

But unlike stocks or bonds or bank deposits, the money that you invest in gold does not contribute to economic growth. The same amount of money put into a good business or any other productive economic activity will create wealth. However, a given quantity of gold will remain the same forever.

Moreover, return rates of physical gold are never profitable if you invest in gold jewellery. The reason being that the price of jewellery is not only determined by the gold rates but it also includes the making charges.

Now, when you sell the gold, the making charges are not considered and you get the money only for the pure gold that is largely based on the gold rates of that particular day.

Holding physical gold comes with unique costs and risks as storing physical gold is cumbersome and an expensive affair. So investors have to be more cautious for their assets when investing in gold.

This is why going for some other form of gold investment is a better way to go, but this is not without risks associated with the assets being digital and not physical.

But if you are opposed to holding physical gold, buying shares in a gold mining company, gold ETF or other gold-linked investment products can be a safer alternative.

However, the blanket rule remains that the best time to invest in almost any asset is when there is negative sentiment in the markets and the asset is inexpensive, because this gives you substantial upside potential when the markets and prices return to favour.