I like the idea of limited gold for each merchant. There should be a dynamic economy, even artificially so, in which merchants' available gold, stocks and even prices are randomly changed every now and then to reflect how well their business is. And merchants should not willy nilly buy loots off of you. In a limited money economy, large investments (buying a pricey magical weapon is a large investment) often is not a good idea especially if it is going to take some time to make a profit off of it (how often do ordinary folks buy an enchanted sword?) One way to handle loots, besides having the merchant buy it off of you, is to have the merchant sell it for you, for a negotiable commission fee. Merchants in more populous/prosperous areas will help you sell loots at faster while backwatered merchants will take forever to get rid of that enchanted shield you asked him to sell.
