Mike & Roy GoldCompany
They’re everywhere, and it happened overnight. Gold is being bought through shopping malls and television campaigns right across the country. The strength to strength run in gold over the past 12-18 months has seen value – and profits – surge right throughout the industry. In a special report for AHA Investor, LINNET GOOD goes behind the scenes with one of the industry’s biggest players: the third generation family of diamond & bullion traders, the Cohens.
It’s been getting hard to miss. Right now, party-plan style businesses are buying up people’s unwanted gold jewellery in a living room near you – and paying good prices at that. Gold buyers are popping up in shopping malls everywhere. When you start to notice a marked increase in those seeking to pay what can be surprisingly high prices for your old, unwanted gold jewellery, there has to be something going on. As you may well have heard by now, gold prices have reached record highs – and the word on the street is that we ‘ain’t seen nothin’ yet. Currency rates are dipping alarmingly, many traditional investments are flagging, if not failing, and the US experience shows that real estate isn’t always as safe as houses. If you’re looking for wealth preservation strategies, the old-fashioned conservatism of investment in precious metals and diamonds is looking pretty smart right now.
Gold is money
To find out more, I headed to Sydney’s Castlereagh Street for a chat with Roy Cohen, one of the Directors of The Gold Company. He and his brother Michael, father Bruce and five others run the business, where they are largely engaged in buying up precious metals and diamonds, usually in the form of old jewellery. Although not strictly a family business, three of the Directors are related. There is certainly a family feel discernible when I visit – children’s artwork and photos line the walls and people casually join in on the conversation as we talk. When I ask about the gold price, Cohen explains that currencies are valued against proven stable commodities with value, such as gold, silver, platinum and diamonds. As currencies lose their value, the prices of these assets go up. He says that the best way to protect yourself against the devaluing of currencies is to invest in precious metals or diamonds. Gold is the oldest currency standard we have, and, along with silver, has traditionally been used as money for thousands of years. It is the basis for all modern banknotes, which essentially began as gold and silver warehouse promissory notes. “That’s our motto,” Roy says. “Gold is money.”
A beautiful business
You have to love an asset that is aesthetically pleasing as well as a good investment. Speaking of his enjoyment of his work, Cohen says that he loves handling gold and diamonds. “There’s just something about gold, the way it feels, the way it looks. It’s real money. And to me there’s nothing as beautiful as a rough, uncut diamond.” He shows me some samples. He’s right – the gold ingots have a very pleasing weight, colour and lustre, while the rough diamonds are simply lovely; natural crystals that can form in many different shapes and sizes. I have since discovered that there is a growing trend for uncut diamond jewellery, particularly in India, where appreciation for the value of precious metals and gems is high because it is embedded in the culture.
What goes around, comes around
So what happens to all that old jewellery once they’ve bought it? Valuable stones are removed and graded and the gold is sorted, melted down and refined. Some is kept and some of it is traded back through the wholesale market through normal distribution channels. Cohen shows me some large plastic tubs filled with jewellery waiting to be melted down, sorted so that each tub contains different carat weights of gold. He tells me that The Gold Company is not in the business of reselling jewellery worth more than its scrap value. Anyone bringing in valuable antique jewellery is advised to have it valued and sold elsewhere. As Cohen says, this is all fundamentally a fantastic, high-end recycling process, where little goes to waste. (Even the inner workings of gold watches are passed on to a local watchmaker, to be used as spare parts.) Worldwide, Cohen tells me, gold recycling represents 30% of gold production per annum. Recycling gold minimises to a certain extent the necessity for its mining, and the associated environmental damage (although he says that these days this has been much improved with modern practices). Increasing the supply onto the market by way of recycling is also a way of reducing the gold price.
A cut above
The other side to the business is the Diamond Certification Laboratory of Australia (DCLA), where diamonds are graded, certified and guaranteed for diamond merchants and jewellers all around the country. It is Australia’s only internationally recognised diamond certification laboratory, which grades diamonds in accordance with International Diamond Council and World Jewellery Confederation rules. And the DLCA Diamond Exchange is a trading floor where buyers can buy DCLA guaranteed diamonds from Australian diamond dealers.
Each diamond is given an identifying number and is examined without reference to the submitting customer to ensure neutrality. All known tests are done on each stone by a minimum of three independent graders. These include state of the art testing for the four ‘C’s (carat, colour, clarity and cut) of diamond grading; and testing to know that the stone is natural and not man-made. Every bit of information about the diamond is recorded, so that the owner or buyer can be quite sure of the details and value of the stone Cashing in, in comfort With regard to the many gold buyers currently out there, Cohen warns that average consumers often don’t know the value of what they have. An offer of cash from an opportunistic buyer for old, broken, unworn or unwanted jewellery may seem like a bonanza to the inexperienced – but it could actually be worth much more. He recommends getting several valuations before selling to anyone.
“Gold is the oldest currency
standard we have, and, along with
silver, has traditionally been used as
money – for thousands of years.”
Competition in the market, however, is starting to mean that people are now getting much better value. The Gold Company prides itself on always paying a fair price. “There are costs involved in refining, and there’s our profit … but we’re fair, and the gold seller always makes the lion’s share of the value.” Cohen says that The Gold Company rates very highly in independent surveys, including a recent one by Choice. In early November, the business won the Australian Service Excellence Award for NSW, awarded by the Customer Service Institute of Australia, and was also highly commended in the national awards.
GoldCompany
“there is a growing trend for uncut diamond jewellery,
particularly in India, where appreciation for the value
of precious metals and gems is high because it is
embedded in the culture.”
While they have tried television and radio advertising, and their website is a strong source of custom, Cohen says The Gold Company’s most successful marketing strategy is through word of mouth and referrals. Three out of four people who come in throughout a day have been referred by someone. The business originated as diamond polishers in South Africa, going back generations, in the case of the Cohen family. They have operated in Australia as a diamond certification company for ten years. The gold buying part of the business started about one and a half years ago, when they realised that people’s options were very limited when it came to selling their gold. Previously, Cohen says, price offers were usually very poor; and you’d be in the dubious surrounds of a pawnshop, with people’s random junk everywhere. The buyer would be sitting behind a security screen or bars and anybody could be looking over your shoulder and seeing what you were doing. The Gold Company provides a pleasant, professional environment, where people can sell their gold and diamonds with confidence for a good price. Cohen says the three key things they provide are convenience, comfort and confidentiality. “People can come in to see us, or they can use our gold packs.” These can be ordered online, and are used to post goods in to the company at no cost, with insurance covered up to $10,000. Sellers are kept informed at all stages and an offer will be made within one to two business days. According to Cohen, “We have huge customer satisfaction. It’s completely different to working in sales. We’re not trying to get people to part with their money – we’re wanting to pay them. A lot of retail talk can be a bit misleading or inaccurate in order to make the sale. In our job, it’s nothing like that. Paying people an honest price for their goods is a lot easier to do than trying to take money from them.” Indeed.
“it will go mainstream . . . In the meantime,
it’s more selected investors and hedge
funds taking advantage of the steady rises”
Centuries of solid value
Interestingly, while the price of gold has been skyrocketing, its value has stayed rock solid for hundreds of years. Cohen points out that when gold was worth $19-20 an ounce, back in the 1700 and 1800s, one ounce would buy you a quality tailored men’s suit. Now, hovering at around $1400 an ounce, one ounce of gold will still buy you a quality tailored men’s suit. Pretty incredible, when you think about it. The enormous, compounding inflation rate in terms of currencies provides a stark contrast. Cohen’s brother, Michael, interjects, “Forty years ago, $20,000 bought you a house.” Now, that much in NSW will barely cover the stamp duty. Silver, although currently priced much lower (see below), is similarly secure, as are diamonds. Cohen says that the main difference between diamonds and gold or silver as an asset is that diamonds have not historically or officially been used as money. It occurs to me that another difference is that altering a diamond can only make it smaller, whereas gold is immutable, whatever you do to it. Additionally, silver can get used up, and may be uneconomical to recover, whereas almost every ounce of gold that has ever been mined is still around today. Although he is at pains to warn that he is not an investment advisor, Cohen sees owning platinum, silver, gold and diamonds as the best wealth preservation strategy. Although the gains are nominal (against deflating currencies, as opposed to real gains in value) the appeal of precious metals is the solid value preservation of your capital. While just about any other investment has the potential to fall to zero, he says, gold and other precious metals cannot, and will always have value. Cohen notes that while many people are interested in selling their gold jewellery, not enough are then taking that money and investing it in bullion, as he advises to do. He says that gold jewellery is in its way an investment, but it’s not in a trading form. If you’re not using your gold jewellery, then you might as well sell it, but if you don’t need that money straight away, then you are better off reinvesting it into bullion or coin.
A golden future
The accepted wisdom for smart investors is to buy when market prices are low, and to sell when they are high. So if the gold price is now at a record high, why are savvy buyers still acquiring as fast as they can? The answer, according to Cohen, is that the predictions are for a continuing increase against currency valuations, so it’s still a good time to buy. He showed me two charts: the gold price over the last 30 days, and then over the last ten years. The first chart, as you might expect for such a short term, showed ordinary-looking fluctuations. The second chart, however, painted a very clear picture of a continuing and increasingly sharp rise in the gold price, from a base of just under $250 to its current lofty value, an increase of 560%. Silver is currently priced much lower, at around $30 an ounce at the time of writing. But Cohen expects that to also make an impressive rise, giving better gains than gold from an investment point of view. This would make it a very smart buy for anyone who missed out on gold when it was more affordable. The ten-year chart for silver prices shows a very similar shape to that of the gold, with a particularly steep incline over the last year. Older generations, he says, knew the value of owning gold, whereas the younger generation are not really interested. Eventually, however, he thinks it will go mainstream, and then we’ll see prices go a lot higher. In the meantime, it’s more selected investors and hedge funds taking advantage of the steady rises. He says that although some people think he’s crazy when he says this, he believes that given a few more years it could reach $10,000 an ounce. The safest method of investment, according to Cohen, is to take delivery of the physical metal, which trades at a premium to the paper price, stored in a bank or safe deposit box.
However, you can also buy into funds that hold gold in allocated or unallocated amounts, or shares in exchangetraded funds (ETF). Then, he says, it’s a question of your risk aversion. If you trust the fund, you may not want to take delivery, as it’s a cheaper way to make the investment, and you don’t have to worry about where to store it.
Lessons learned
I come away from our meeting with a new appreciation for precious metals and diamonds. Having caught Roy Cohen’s passion for his stock in trade, I can’t help feeling as if I don’t have nearly enough gold in my possession. I’ve learned that gold, despite the high price, is still a good investment; silver is a very good buy right now; and diamonds are well worth having so long as you can be sure of what you are getting. The best opportunity for me right now, as a beginning into hard asset investment, is to buy silver while I can still afford it. And to encourage my aging relatives to give me their old jewellery!
Source AHA investor
