Need for cash spurs golden opportunity

As a 12-year-old growing up in Atlanta, Scott Garber started dealing baseball cards. As a teenager, he moved to Beanie Babies, building what he said became an $8 million business around the plush collectibles. Now, he runs a growing chain of gold-buying stores.

It may seem the 31-year-old is making a career of chasing fads, but Garber said gold is the business that will stick. He said his operation, fueled by soaring gold prices and consumers’ need for quick cash, has already grown from one with $23 million in revenue for 2009, its first full year, to one with $248 million in 2011.

Garber’s businesses have more than good timing in common. In each case, he built a company by buying from customers, not selling to them. And as long as people inherit items they do not want, and find broken pieces in their jewelry boxes, it doesn’t matter if the economy improves or if the price of gold drops, he said.

“We don’t feel there’s really a bubble to burst here,” said Garber, whose GoldMax chain is co-headquartered in Atlanta and Chicago. “This is where we’ll stay. There’s a long-term need for our service.”

When Garber and three friends started the business, gold sold for just shy of $700 an ounce, he said. Since then, the price has risen to more than $1,700 an ounce. Garber is hardly the only entrepreneur to take note: Stores that want shoppers to know that WE BUY GOLD have sprouted across the region.

Before the recession, gold-buying was often a mail-in business. Rising gold prices and the lingering effects of the recession and housing bust created a target market of people who need cash, and empty storefronts to lease at favorable terms. Retail stores mushroomed.

Some use costumed people who spin signs on street corners to bring in customers; others have flashing signs at their doors or hawk their services in ads.

Buying, though, is only half the business. The other half is selling to a refinery, which will melt gold down for bullion or for use in other products.

At Gold & Coin Exchange in Marietta, the average customer gets 65 percent of the worth of their gold. The one-shop store sells gold scrap to a refinery for 98.5 percent of the spot price of the gold, minus fees of a couple hundred dollars. Some stores will resell unique items to collectors and dealers for more than they could get from a refinery.

Robert Oberth, who has run Gold & Coin Exchange with his brother-in-law since 2006, thinks the price of gold is suppressed worldwide — he expects it to keep rising. But he noted as the price of gold rose over the years, so did the price of milk and bread. Rising prices over a long period don’t necessarily mean the precious metal is worth more, just that it has held its value through inflation.

Oberth, who started his store as a rare coin exchange, said he, too, plans to be in business for the long haul. He doesn’t expect that to be the case for everyone.

“I think they’ll move on to the next big whatever-happens,” he said of his competitors. “Most of those places have already gone under, or popped up under a new name.”

Garber’s business was called Southeast Gold Buyers before it was renamed GoldMax late last year to keep a consistent national name as the company grew. GoldMax has 185 stores in eight states, including 65 in Georgia, and plans to add 58 more and expand into three new states in the next three months.

Garber thinks the industry can support more than 700 of his stores in the next five years. If the price of gold were to drop, he said, it would decrease demand, but also drive competitors out of business.

Before the explosion of gold-buying stores, people went to pawn shops and jewelers to trade unwanted gold for money. Both the World Gold Council and the Better Business Bureau still recommend going to a trusted jeweler, but metro Atlanta Better Business Bureau spokeswoman Dottie Callina said complaints against gold-buying businesses are not high relative to the number of establishments.

Most complaints, she said, stem from advertising that promises the best price. Some customers are disappointed with their offers, which at GoldMax can range from 60 percent to 95 percent of the actual worth of the gold. The offer price depends on the karat and the amount of processing work necessary.

Robin Clements left Gold & Coin Exchange Monday with $911 for a gold chain, some pendants and an inherited class ring. She was thrilled with her haul, which she said she would use to buy new catcher’s equipment for her son. Her husband has been out of work for some time, Clements said, and selling old jewelry allowed her to buy Christmas presents and keep her son playing travel baseball.

It was the third time Clements had sold jewelry at the store. She got 67 percent of the worth of the gold on the day she sold it.

“I wouldn’t be able to get my kid these things without that money,” Clements said.

Lee Zell, though, left the store without selling his collection of 63 Mercury dimes. The silver dimes are worth about $2.45 apiece melted down, Oberth said. Zell, who has been unemployed for 21 months, said he needed the money to pay for health and car insurance. But he refused an offer of $135 for the collection, or about $2.14 per coin. He said he thinks he could get more elsewhere.

Gold-buying businesses are required to hold items before reselling them or sending them to be melted, so if an item is reported stolen, it can be recovered. Customers may also be fingerprinted, depending on the requirements of the city or county a store is in. The difference between what customers are offered and what gold is worth help insulate businesses against a price drop during their holding period.

David Schraeder, a spokesman with the World Gold Council, said the U.S. is late to a gold-buying trend that is more highly developed in other parts of the world. He suggested gold-sellers get at least three offers before parting with their items — and cautioned against selling gold in order to go out to dinner or buy clothes.

That’s because gold is a good way to store value, said Ed Hyland, a global investment specialist with J.P. Morgan Private Bank in Atlanta. Consuming it eliminates its future worth.

Hyland said the supply and demand curve for gold remains intact. Adrian Cronje, chief investment officer of the investment advisory firm Balentine, said for now, he recommends clients hold onto gold in their investment portfolios. But when interest rates rise, he added, there will be better ways to invest.

Still, he said it is best to be cautious.

“For now, it’s not yet in a bubble,” he said. “It’s a very good candidate to become a bubble at some point.”

Garber, who has an undergraduate degree from Georgia State University and dropped out of an MBA program at the University of Chicago to run GoldMax said he is comfortable with the level of risk. While he expects the gold business to grow, he also has diversified into buying currency, diamonds, watches and silver.

The chain’s strip-mall stores are spare, with cardboard cutouts of national spokesman Robin Leach, a waiting area with a flat-screen TV playing G-rated movies and a wooden, rug-covered floor. There are framed posters of gold on the walls. Customers are buzzed in at the front door, then ushered to a long table covered with a GoldMax banner and set with a scale and desk lamp used to weigh and inspect items.

Haley Norris, who works at a GoldMax store in Marietta, said most customers are happy with their offers and have plans for the money.

“Good or bad economy,” Garber said, “there’s always going to be a need for people to sell.”