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San Fernando
Friday, Mar 29, 2024

Striking Gold

The San Fernando Valley region is experiencing a gold rush. As the price of gold has soared, waves of newcomers are entering the region’s gold industry in hopes of striking a ripe business opportunity. Those who have been selling gold here for decades say they now are facing some fierce competition, and that’s putting pressure on their profit margins despite an increase in sales volume. Continental Coin and Jewelry Company in Van Nuys has been in business for more than 40 years. Marketing Director Jeffrey Ringer said the rapid growth of fresh competition is “hurting” the older dealers. Of all the gold dealers in the Valley, Ringer estimated that about half have popped up over the last few years. “Everyone says ‘We Buy Gold’ now,” he said. “Everybody is jumping in.” The new businesses range from street corner pawn shops looking to buy your grandmother’s ring to boutique investment firms selling gold as a means to secure your retirement plans. It’s impossible to know how many new gold stores and investment firms have cropped up in the area, as no one tracks that information. But veteran gold dealers provide anecdotal evidence that there’s enough new competition that they’re feeling the pinch. Jonathan Honig in April opened Pinnacle Gold Group, a Sherman Oaks-based boutique investment firm. He has worked for in the gold industry for a decade, including five years as the vice president of a Los Angeles-based gold coin company. “I was able to see what was done right and what was done wrong,” Honig said. Now more than ever consumers are looking for something that will hold its value and remain consistent, Honig said. And so far, business is thriving, he said. “Our (client) lead generation has tripled in the past few weeks,” he said. Eric Kieling and Trevor Gerszt previously worked in the mortgage business before becoming gold dealers. The two opened National Gold Group (NGG) in Woodland Hills in August 2010. Kieling, the company’s CEO, said he got into the gold business because he saw an opportunity to make money after the mortgage industry declined in 2008. NGG is a boutique gold investment firm that specializes in diversifying consumers’ portfolios and retirement plans. Since the company opened, it has grown every month, Kieling said. To support the recent boom in the industry, he said he plans on hiring 15 employees to add to NGG’s existing staff of 22. If the spot price of gold reaches $2,000 an ounce by the end of the year, as Kieling predicts, it would mean even busier times for NGG. “The sky’s the limit,” he said. Many of the region’s new gold dealers are not following industry-established guidelines related to pricing and selling practices, said Barry Stuppler, president of the California Coin and Bullion Merchant Association. “If the price is too good to be true, it probably is,” Stuppler said. Stuppler has been in the gold business for more than 45 years and owns Woodland Hills-based Mint State Gold. He called the upswing of new dealers “scary,” and noted that the association requires dealers to be in business for a minimum of five years before applying for membership. The market’s spot gold price is the base from which dealers have to quote their customers when buying or selling gold. Dealers choose the price mark-up or mark-down, which will determine the gross profit they make on a deal. Although dealers have seen their sales volume double, and even sometimes triple, profit margins have remained consistently low, Stuppler said. Gross profit margins hover in the single digits, ranging from 1 percent to 3 percent, he said. According to the World Gold Council, the price of gold has steadily risen in the last 10 years, with annual gains of 20 percent or more between 2002 and 2010. The current spot price per ounce is $1824 (update on production day for accurate figure), an increase of almost 10 percent in the last month alone. Bill Watkins, director of the Center for Economic Research and Forecasting at California Lutheran University in Thousand Oaks, said concern over the state of the U.S. economy and the declining value of the dollar is driving consumers to explore investment options such as gold. He and others say gold commodity sales are likely to remain high until that uncertainty can be eliminated. But as the economy stabilizes, the price of gold will fall. Pinnacle’s Honig said he advises his clients not be “too top heavy in gold.” And when it comes to his business, he takes his own advice. Honig said he deals with other precious metals besides gold, which can prove useful if the market were to change. NGG’s Gertszt, who’s the company’s chief operating officer, said that as a newcomer to the business, the topic of his fate as a gold dealer often arises at the dinner table. But he’s not worried about the future. “I’m definitely in it for the long term,” he said. “Let’s just say I have no backup plans.”

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