Mr. T Wants to Buy Your <b>Gold</b> — Time to Sell?

Oct. 15 2010 - 2:00 pm | 720 views | 0 recommendations | Mr. T wants to buy your gold.

It’s a gray day in midtown Manhattan, and Mr. T is waxing philosophical on the mythology of gold.

“Midas forgot, when he asked for the golden touch, that everything he touched turned to gold. So he couldn’t eat,” he says. “But I don’t want the Midas touch. I have the Midas touch, in the way that when I hook up with a project, I feel, not speaking cocky or conceited, but there’s a confidence I have. I learned that from Muhammad Ali, I used to bodyguard him. He taught me about confidence. So when it comes to any job I work, I’m gonna do it good, I’m going to bring it over the top.”

Mr. T’s latest venture is certainly over the top. He has signed on as the spokesman for Gold Promise, a new gold-buying venture launched by publicly-traded Cash America, one of the world’s largest pawn brokers. Starting this week, Mr. T will appear in a series of television ads where he tries new things—playing golf, getting a spa treatment—a product, the story goes, of him selling a few excess chains.

In the campaign, which also features a range of print and web ads, Mr. T exhorts customers to take their unwanted gold, drop it in a special envelope, and mail it to Gold Promise in exchange for cash. “Getting a great price was important to me,” he says in the television spots. “That’s why I chose Gold Promise, a company I trust.”

(Read on: The Softer Side of Mr. T)

So is it wise to sell your stray gold to the company trusted by Mr. T? Not necessarily. Although Gold Promise boasts that it will beat any competitor’s price by 200%, it’s important to note that the guarantee only extends to online competitors, which are notoriously shady. A recent study by The Today Show found that online dealers offered as much as little as 8 cents on the dollar for gold jewelry. Most fell in the 50-80 cents-on-the-dollar range.

Local pawn shops will give you a quote over the phone if you tell them how many karats, and how heavy, your item is. Gold Promise refused such a request, explaining that doing so would “offer the competition the opportunity to adjust their pricing strategy in the short-term to attempt to drive us out of this business.” According to chief executive Dan Feehan, Cash America’s gross margin on scrap gold is 20%-25%, which suggests Gold Promise pays about 80 cents on the dollar for gold, placing it at the high end of the online gold-buying spectrum.

Though Gold Promise may be among the better options for selling gold online, most professionals recommend having jewelry appraised before plopping it in an envelope and shipping it away. “This may be a great time to sell unwanted gold jewelry, as the price of gold has shot up over the past few years due to the economic crisis,” says Mary A. Malgoire, president of The Family Firm, a financial advisory in Bethesda, Md. “But don’t jump at the first offer.  Get quotes from several local jewelers.”

Even though online buyers usually pay less for gold than their bricks-and-mortar counterparts, many consumers are considering buyers like Cash America’s Gold Promise in the wake of the contraction in consumer credit.

“Customers that have not traditionally been our customers are looking for new options for small short-term loans since credit limits on cards have been reduced or eliminated,” says Feehan. “They’re looking online…it’s a lot less intimidating than walking into a pawn shop.”

Feehan believes Mr. T will help drum up new customers for his company, which enjoys healthy margins on gold regardless of price fluctuations. But regular investors thinking of sinking more cash into precious metals would be wise to note Mr. T’s presence as a sign of frothy gold prices.

“Gold is a poor investment because the return is based solely on price appreciation and, more often than not, fear, rather than sound fundamentals in the demand for the metal,” says Malgoire. “The more TV pitches you see for investing in gold, the more you should run the other way. This is a sign of the end of gold’s run.”

So what’s the best investment strategy going forward? Take some advice from Mr. T.

“I still believe in T-Bills, and not just because of the T,” he says. Most of all, though, he stresses the importance of a balanced portfolio. “Diversify—go here, go there, so you won’t be caught out in the cold.”

http://video.forbes.com/fvn/business/mrt-on-gold

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