I paid $4.60 for gas yesterday morning and this morning it’s up another 6 to 10 cents. Like you, I have read all the reasons why the price is up, and heard all the nostrums for making it go back down. Except one. The real one.

Yes, it’s true that demand in China and elsewhere is pushing prices up, and that restrictions on deliveries from, eg, Iran are pushing prices up. And that sluggish economic activity in Europe pushes it down.

Those are world forces, and despite the ravings of the Republicans, nothing the United states could do can or will have any significant effect.

But this is not the world, it’s America, and prices are rising in America for specifically American reasons: the unhindered stock market is the culprit. And, no, I don’t mean speculation.

In a world market as big as oil, speculation cannot have more than minor and transient effects. Nobody can corner oil.

The character of the American gasoline system has changed fundamentally over the past couple of decades.

It used to be that when world crude prices rose, that was wonderful for owners of oil wells, but not so wonderful for owners of refineries. The world price of crude is almost always more elastic than the price American motorists are willing to pay for gas. When prices rise, use declines and refiners get squeezed.

It used to be that a large fraction of American gasoline came from integrated companies that owned wells, refineries and, often, distribution networks.

Big Oil, say Exxon, didn’t see its profits zoom quite as much when crude rose, but it didn’t see its margins shrink quite as much when crude fell, either. The system was damped.

Wall Street plungers – and excutives who get paid according to what their stock did this quarter – hated this. It was really hard to goose the stock price.

Integrated oil companies broke themselves up. They sold off their refineries, so that the largest refiner is not Exxon or Chevron, but a company nobody ever heard of, Valero.

Few American business managers really believe in the business cycle, and nobody on Wall Street does. The people who bought Valero don’t, although if they are paying attention, they ought to be changing their minds.

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A couple of years ago, when demand was down, Valero and other exclusive refiners saw their profits melt. They did what industrial companies usually do: laid off workers and shut down production lines.

Only, for a variety of reasons, refineries are not like widget assembly lines. They are hard to restart once abandoned.

The managers of Valero and the other refiners were too stupid to imagine that, hey, demand for gas might go up again, and pretty soon. When you are managing by quarters, you cannot afford to think 5 or 6 quarters ahead.

So, the economy improves somewhat and demand for gas rises somewhat (a very small thanks to the Obama administration, which has not done much to help the revival but at least has avoided Republican nostrums that would prevent it from recovering ever).

Eh, voila! We have not a shortage of oil – the country is producing more than ever, despite the lies told by Mitt Romney – but a shortage of refineries.

This is what unregulated markets do. Under Bush II, they crashed the financial system. Obama, more’s the pity, did not do anything to regulate petroleum (and, truth to tell, it’s hard to see how this particular exchange of assets could be regulated), and now they have crashed the domestic gasoline supply system.

A self-inflicted wound.

Recently (Feb. 27), we promised to tell you about the history of an unusual pawn shop that didn’t take gold – the favorite transaction of most pawnbrokers – or guitars, firearms, clothing or any of the many, many items that most pawnbrokers deal in.

 

It was the Provident Loan Society of New York, a non-profit established following the Panic of 1893. In those days, even large businesses could hardly obtain banking services for years, and the situation of the working family in need of a loan was desperate.

 

The Provident restricted its lending to diamonds, which were the form of portable wealth commonly used by ordinary people. The presentation of a diamond engagement ring was not just an expression of love. It indicated that the groom (the main wage earner in most working families in those days) was solid enough to provide a cushion, beyond the weekly pay envelope, for the security of his family.

 

In a time when health insurance and unemployment insurance were unknown, when a line of credit (similar to a credit card) was impossible for working families to obtain, possession of a diamond meant the difference between  having a roof over their heads and being tossed onto the street in the event of layoffs or injuries or sickness.

 

But abusive lending practices were common.

 

The Provident was set up to serve the better-off working poor and middle class. It restricted itself to diamonds, as related in “God Bless Pawnbrokers” by Peter Schwed, an early president of the Provident who later went on to become chief executive of one of the largest publishing houses.

 

The Provident still exists, but it is not as flourishing as it once was, though today it accepts gold jewelry and gold watches as well as diamonds. While it offered a better deal for those families that had a diamond, it could not compete effectively with commercial pawnbrokers, who were ready to take bigger risks and offer more accommodations for people wanting short-term cash – and who did not have a diamond, even though they might own a TV, tools, or a violin.

The first, simple test is to touch the jewelry or coin with a magnet. At Kamaaina Loan, we use a small but powerful neodymium magnet (the kind used in speakers).

If it’s just plate (sometimes sold as gold-filled or under other tricky names), the magnet will be attracted to the iron underneath.

Gold plate is real gold but so thin its value is insignificant.

If the item is not plate, then a series of tests can determine its karat-value, or proportion of gold to base metal.

24K is pure gold. Jewelry is made from lesser karat-gold, because pure gold is too soft to be durable.

Thus, 12K is half gold, and 18K is three-quarters gold.

If gold is selling for $1,800 an ounce (it’s close to that today), then a 14K ring weighing 10 grams contains a little over a sixth of an ounce of gold.  There are 31.1 grams in a troy ounce, so the 10-gram ring weighs just under a third of an ounce, and 14K is a little over half gold, so the ring contains a bit more than one-sixth of an ounce of gold.

At $1,800 an ounce, the gold itself has a value of about $300. After it has been refined. The market value of the gold while it’s still in the ring is going to be something less, because of transaction costs, shipping costs and refining costs.

But that’s how a pawnbroker determines how much gold is in your piece of jewelry.