December 19, 2014

COVER STORY

Cash4Gold's Rush

A Pompano Beach company has emerged as one of the country's highest-volume gold dealers by capitalizing on many consumers' desire to turn their jewelry into cash.

Mike Vogel | 5/1/2009

Going forward, the company and the state will have to resolve how it should be regulated. Law officers want Cash4Gold and similar mail-in companies to obey the law governing secondhand dealers in precious metals. The law — meant to deter thieves from liquidating stolen jewelry and aid police in recovering it — requires the dealers to get photo IDs from sellers, keep detailed descriptions of items they’re buying and make data accessible to law officers.


South Florida police detective Jack Gee says his group may ask Attorney General Bill McCollum for an opinion on whether internet gold buyers should have to comply with the law applying to pawnbrokers and other secondhand dealers in precious metals. [Photo: Jeffrey Camp]
Jack Gee, a south Florida police detective and the legislative chair of an association of property crimes investigators, the Florida Law Enforcement Property Recovery Unit, says Cash4Gold is the only mail-in, internet-based gold buyer that makes an effort to comply with the law — it now sends Florida consumers a peel-back ink strip so that they can provide a thumbprint. Even so, Gee believes that “every transaction they do is illegal” because the companies don’t verify sellers’ identities with photo IDs. Gee said his group is considering asking Attorney General Bill McCollum for his legal opinion pending the outcome of the legislative session on whether companies like Cash4Gold should have to comply with the law. Cash4Gold is a company the law didn’t contemplate when it was written, Aronson says.

The company didn’t comment on whether it has registered with the state as a secondhand dealer. It says it supports a bill that was making its way through the Senate at press time that would regulate companies like itself and still “protect victims of theft.” The bill was originally introduced by Rep. David Rivera, R-Miami, and Sen. Dan Gelber, D-Miami Beach, but was substantially amended in committee. Another bill, sponsored by Rep. Dave Murzin, R-Pensacola, and Sen. Victor Crist, R-Tampa, would regulate the companies as secondhand dealers but allow them to accept a notarized statement attesting to the seller’s identity rather than a picture ID. That requirement could diminish the convenience and confidentiality that Aronson describes as big attractions for his customers.

On the issue of how much Cash4Gold gives consumers for their jewelry, Aronson makes no bones about his payouts.

In general, the gold-buying industry is very competitive. Commonly in the industry, a buyer who calculated the value of the raw gold in a bracelet at $100 would pay the owner at least $90 for it — a 10% or less cut of the metal’s value going to the gold-buying company is typical, says Mike Riess of Connecticut-based Materials Management, a former refinery manager and a director of the Pensacola-based International Precious Metals Institute, of which Cash4Gold is a member.

Aronson’s margins are much higher. Aronson says Cash4Gold pays the seller between 20% to 80% of the metal’s spot price depending on its quality and quantity — meaning he might pay the bracelet’s owner as little as $20 for the $100 worth of gold. Aronson says his valuation depends on the volume. Send him a lightweight packet and he’ll keep 80% of the value. Send him 10 ounces, and he’ll keep only 20%.

“I make no apologies of it because I want people to understand that I can pay what I can pay,” he says. Aronson says competing jewelry buyers don’t have his costs of acquisition, processing, overhead and mailers. “Anybody has the opportunity to say, ‘I’m not happy with this offer,’ and I encourage everyone, if they’re not happy with the offer, to go somewhere else. ... Our (net margins) are not egregious at all. I’m sure the pawnshop with the same piece of jewelry is making more money than I am because of my cost of acquisition. My (net margins) I only wish were higher.”

How Much Is It Worth?

 Unless consumers know an item’s weight and grade, they rarely know what their jewelry is worth as scrap metal that will be melted for resale to industry or as a financial commodity. Some underestimate their jewelry’s value while others hold inflated views, not realizing that 14-karat gold is only about 58% gold, for example, or that an item’s original retail price — which reflects the piece’s labor and artistry and markups along the supply chain — is irrelevant, as is the insurance appraisal of replacement value. “Consumers have an unrealistic expectation of the amount of money they can get for gold,” says Cecilia Gardner, President and CEO of the Jewelers Vigiliance Committee, an industry compliance group of which Cash4Gold is a member. “The nature of the complaints (about Cash4Gold) we get is the prices they offer. If you don’t like what you’re being offered, don’t sell it to them.”

Indeed, a quick calculation by Florida Trend provides a sense of how expensive Aronson’s business model is: TNS Media Intelligence, an ad tracking firm, says Cash4Gold spent $124 million in marketing in 2007 and 2008. Divide that by the 800,000 transactions that Cash4Gold did over that period and the first three months of this year. That’s $155 per transaction — meaning Cash4Gold has to knock, on average, $155 from the metal value on which it pays per transaction to consumers just to cover its ad spending, before arriving at a payout that covers its costs for labor, mailing, environmental compliance and other corporate expenses.

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