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Buying Gold Paydirt…it’s not about the “ROI”
by Michael Valadez
You can always tell whether a person has gold fever or not. When you show someone your gold, the person unaffected by the malady usually has only one question: “How much is that worth?”
The same is true of some gold paydirt buyers, but their preoccupation is on the “ROI” (Return on Investment).
It seems that almost every gold paydirt reviewer on the internet has adopted an “ROI” measurement as part of their assessment to gauge whether a given supplier’s paydirt is any good or not.
They are attempting to provide a reliable means of grading paydirt suppliers, and for measuring the value of the gold contained in their respective shipments...an industry full of crooks and scam artists. An objective assessment can certainly be of value in sorting out the good guys from the bad guys.
However, 99% of the gold paydirt reviewers on the internet misuse the ROI term, Return on Investment. Click here for an accurate explanation and calculator.
Simply stated, if a paydirt shipment costs $100 and yields $75 worth of gold, then the true ROI is -25%. If it returned $125 worth of gold the ROI would be +25%. You see, a return on an investment that is worth less than what it costs, is considered an negative ROI.Those who misuse the ROI, would call these returns 75% and 125% respectively.
There is only one paydirt reviewer that I am aware of who, to his credit, calls the ROI “Recovery of Investment” and thus avoids the misuse of the classic ROI definition.
But what I really want to address is the overemphasis on the ROI metric in terms of gold paydirt purchases.
As far as I’m concerned, anyone whose primary concern is ROI, SHOULD NOT BE BUYING GOLD PAYDIRT IN THE FIRST PLACE. Why? Because…
It’s the “I” in ROI…Investment. Placer gold, in general, is not an investment.
A paydirt seller is not going to knowingly sell you his gold for less than what he thinks it is worth, which is usually the spot price per ounce plus a premium.
In order for an investment to increase in value, you have to be able to sell it for more than what you paid for it.
The long-term chart for the spot price of gold has peaks and valleys. If you bought gold in 2011, your “investment” is worth far less today than what you paid for it. See this chart.
While the Spot Price of gold is a good relative measure of the value of gold on the world’s commodity and bullion markets, it bears little or no significance when it comes to the value of the placer gold commonly found in paydirt shipments.
Placer gold purity varies widely. Technically, the spot price of gold is for pure, 24 kt., .99999 finegold. See this Blog
However, purity only matters if you are trying sell your gold to a refiner. The refiner will typically test your gold before they make you an offer to determine how much they are willing to pay for it – purity is everything to a refiner.
The Nome Alaska gold dredging fleet typically gets 80% of spot for the their gold and have recently moved away from selling raw placer gold to melting it down into doré bars which increases the value of their gold by reducing costs to the refiner.
The value of any item, regardless of what it is, is always equal to whatever someone is willing to pay to obtain it. This is a basic principle of supply and demand economics. No one in their right mind would buy placer gold over the spot price for the purpose of melting it into doré bars and selling it to a refiner – they’d be losing money - refiners always pay less than spot for gold because all that matters is purity
As a gold paydirt supplier, I don't sell just gold, more importantly, I offer the thrill of discovery, the rush that comes from working the material in a gold pan down to where the first bit of gold starts to reveal itself! It’s a Eureka moment! I found it! That’s gold fever! It fun! It’s exciting! I love it, and so do most of my best customers and friends.
So please, if ROI is your primary motivation to purchasing gold paydirt, look around for someone who guarantees the purity of their gold before you buy it, and be prepared to hold your gold for a long time in the hope that a refiner will eventually be willing to pay you more than what it cost you…and good luck with that.