Gold: S.O.S.

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There’s a reader forum at the Kitco.com website where followers can discuss Kamaaina Loan’s second favorite subject, the price of gold. (The favorite is our customers.)

Even Kitco describes the recent behavior of the world gold price as “carnage.” The New York market is about to close as this is written, and it looks as if today’s price will be $90 an ounce under where it was (briefly) just two weeks ago.

So the forum asked the S.O.S. question, are the followers going to Stay with gold Or Sell? The unanimous answers were STAY.

In a way, that’s bad news for our Maui pawn shop. If nobody sells gold, what will we do?

Well, we could lend money on gold, and we do that, but sellers are an important part of our business.

Oh. Not only are most of the Kitco Kommenters staying, most are planning to buy more gold! That’s a relief. We sell gold, too.

Thank goodness somebody is buying this stuff

Thank goodness somebody is buying this stuff

 

Kitco is mentioned  because it publishes a moment-by-moment price statement on the Internet, very convenient for pawnbrokers, who need a daily fix of gold info.

Nyah, nyah, Vladimir Putin

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We guess the world — at least the part of it that buys gold — is not afraid that Russia will invade the rest of Ukraine. Gold dropped under $1300 an ounce and has stayed there for two whole days.

7,783 of these per ounce

778 of these per ounce

This suggests that the blip up in the past couple of weeks was due (in part anyway) to war jitters (almost always good for gold if not for anyone else) and now it has resumed its predicted long decline until . . .

$1300 itself is probably not an important price level. It’s easy to remember, and when I was a business reporter nice round numbers were often described as “important psychological marks,” but there’s not much evidence that this works for something that is traded by so many people in so many countries and in so many currencies as gold.

India is a big market for gold, and the $1300 price point in dollars does not work out to a round number of rupees. In fact, it’s 77,831 rupees.

Like a deer in the headlights

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Iraq has purchased 1.1 million — yes, MILLION — ounces of gold, according to Kitco.

Some of Kamaaina Loan's gold inventory.

Some of Kamaaina Loan’s gold inventory.

Analysts speculate that this quiet buying helped support the world gold price recently. Shucks, we thought it was because the world was afraid Vladimir Putin was starting World War III.

In any event, if Putin spooked the market, that’s over. Gold was back down to $1312 in New York today. It had nudged up to $1380, which was $100 an ounce higher than at the beginning of the year.

That’s a gain of nearly 8%. All gone now.

Here at Kamaaina Loan, we feel like we imagine a deer feels in the headlights — transfixed but helpless to do anything about it. For our Maui pawn shop, transactions in fractions of ounces are our bread and butter. A  purchase or sale of 10 ounces would be a red letter day.

We, of course, like to see the price of gold go up. We have a sizable amount of gold in our jewelry store at 98 North Market St., so rising prices make that more valuable. Even more important, if gold goes up, we can lend our pawn customers more, earning more interest for us.

If the smart money is right, though, the trend is not in our favor. Goldman Sachs and Societe General, big playas, are looking for an average 2014 price as low as $1225. Bloomberg News reports:

Bullion, which slid last year by the most since 1981 as some investors lost faith in the metal as a store of value, rebounded 9 percent in 2014 as the global expansion faltered and tensions escalated in Ukraine. Those bullish influences are “transient,” and the U.S. economy will recover from a weather-driven slowdown, pushing gold lower, Goldman’s Jeffrey Currie reiterated in a March 20 report.

Since the year is already almost one quarter over, it will take a 6+% decline just to get to $1225. To get to an average of $1225, the bottom price would have to go lower still.

What can we tell you? If you want to sell or pawn your gold jewelry sometime this year, Goldman Sachs thinks you should do it now rather than later.

We have no idea.

What are we waiting for?

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There was a bill in the Hawaii Legislature this year that would have mandated electronic reporting of pawnshop transactions to police. At present, it is optional. There were a number of questions ab out how it would work in practice and the bill was deferred.

Electronic reporting at Kamaaina Loan is more advanced than this

Electronic reporting at Kamaaina Loan is more advanced than this

Instead the Department of Commerce and Consumer Affairs will form a working group to report to the 2016 Legislature. So far, so good.

One of the issues is the “hold period” for purchased or pawned items. The rationale behind a hold is that it gives citizens or police a chance to check dealers to see if they have received stolen items.

(Yes, from time to time citizens come by with circulars describing items they have lost in  burglaries, usually readily identifiable jewelry. Not often, but sometimes, there’s a match.)

In Maui County, the hold period for licensed secondhand dealers, like Kamaaina Loan, is 15 days. For pawns, 60 days. In theory, most people dealing in buying and selling secondhand goods ought to be licensed, but we don’t think most are. Inspections are lax to nil, except pawnshops, which are more closely regulated.

In other Hawaii counties, hold periods vary within the 15- to 60-day framework. But on the Mainland it can get much more complicated. How complicated, you ask?

The Brockton, Massachusetts, area may hold the record. Each community sets it own standard, ranging from no hold at all, to 10, 14, 21, 30 or (in a proposal in one community) 60 days.

burglar

While the amateur burglars may not keep that straight, it seems likely that the professionals know which towns have the least regulation.

 

Pawn shops take over the Big Apple

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According to an article in Crain’s New York Business, there are now 493 pawnshops in New York, up by 50 percent (when you include secondhand dealers) since 2010. The big growth is in high-end pawnshops, which cater to the pawn-my-Picasso set.

Blogging for gold -- what we do at Kamaaina Loan blog

Blogging for gold — what we do at Kamaaina Loan blog

This from CNBC’s Robert Frank, who blogs about “Wealth.” He opines:

I could understand why the wealthy needed pawn shops in 2009 and 2010. But with stocks and other asset values so high, and with the wealth of the wealthy back to all-time highs, I’m having a hard time figuring out just who these cash-strapped “rich” are today.

Huh. He must not know many wealthy people. For every one who can plunk down cash for a McMansion, there’s another whose assets are tied up in lettered (temporarily unsalable) stock; stock options; real property; or otherwise something that they feel reluctant to liquidate.

Like gold. Gold has been rising for a few days (thank you again, Mr. Putin!), but it is still no higher than $1,356. While that is a pleasant $25 an ounce more than it was 30 days ago, it is an unpleasant $300 or $400 less than it was if you bought gold a year or two ago.

Lots of people (we surmise) who bought gold for the long term, and still expect that to pay off, would rationally be willing to pawn their gold to meet current obligations, rather than realizing their losses, and be able redeem it next month (or 2 months) and keep on keepin’ on with their long-term strategy.

Even people who bought gold last May when it dropped near $1,200 and would therefore show a profit if they sold today might still expect plenty of upside and be reluctant to sell out now and miss that.

The reputation of pawnshops as the resort of the desperate is not incorrect. In fact, our Maui pawn shop takes pride in being willing to help desperate people who no one else will deal with.  But most of Kamaaina Loan’s customers are not desperate.

Fingertips -- no good for paying your utility bill

Fingertips — no good for paying your utility bill

Typically, they are evening out cash flows. If you are a person who works for a fixed wage, life would be very different if you were in the visitor industry and saw your income yo-yo up and down with the seasons.

MECO bills tend to run around the same amount each month, and MECO wants to be paid each month, even if some months your tips or commissions drop to almost nothing.

 

Yes, we are regulated, duh

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It seems the Michigan State Police raided a “pawnshop,”  and now the “pawnshop’s” “customers” are

  wondering if they will ever be able to buy their items back.

Aside from the evident confusion of the Fox reporter — pawn customers do not “buy back” their collateral, they repay a loan and redeem it — this story does raise some questions. The “pawnshop” was (allegedly) operating without a permit. That means, we suppose, that the “customers” were without the protections that regulations provide for real “customers” of real “pawnshops.”

Just hanging out a sign doesn’t make you a pawnbroker, any more than  hanging out a shingle makes you a lawyer or a doctor.

The story does not say low long the “pawnshop” operated without a permit, or whether it had any sort of business license at all. In other words, was this a totally fly-by-night operation, or was it an example of a (more or less) legitimate business that crossed the line into pawnbroking unintentionally?

 

We have been around long enough for our guardfish to get huge

We have been around long enough for our guardfish to get huge

Generally speaking, you shouldn’t have to check the Business Registration division of the Department of Commerce and Consumer Affairs (in Hawaii, or whatever the equivalent is in Michigan) before doing business; although maybe that wouldn’t be such a bad idea. Our Maui pawn shop has  been in business at the same location for decades, so you can assume — and you would be correct — that it has its proper licenses and is supervised by (among others) the Maui Police Department.

A pop-up shop that hasn’t been around for long, all assumptions are chancy.

Before you pledge your wedding ring — we will assume here that it has both sentimental value and precious metal value, and the sentimental value might be higher than the gold value — maybe you should check DCCA for complaints. Just because a pawnshop has a license doesn’t mean it also has a good record of complying with the mandatedc hold perios (15 days on purchases, 60 days on pawns). We know of a local pawnshop (not ours) that has been sued — more than once — because a customer went back to redeem a pledge and discovered that it had been sent to the smelters.

Pawnshopsa are not the only businesses where people leave  valuable property and expect it will be there later when they want it — banks, escrow companies, stockbrokers, property managers  and storage companies come to mind in this respect. Think Bernie Madoff.

The adage, know who you are dealing with, applies across the board.

Pawning and banking in China

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On the same day that The Maui News reported that China opened bidding for the first five private banks in the country, online news source Quartz reported on the  boom in pawn shops there.

China is considered the birthplace of the pawn business, maybe 3,000 years ago, but the Communists suppressed pawnbrokers and today there are only about 7,000 pawnshops, half as many as in the United States.

Do I look like a teddy bear?

Do I look like a teddy bear?

But as Quartz reporter Nona Tepper explains, an American pawn shop is about as different from a Chinese pawn shop as a teddy bear from a panda bear.

While our Maui pawn shop, like most of the 13,000 others in the Unitd States, deals in gold chains and TVs and lends a couple hundred dollars or less to most customers, in China pawnshops deal in astronomically priced apartments and serve to finance business. That’s because China’s state-run banking sector is famously dysfunctional.

At Huaxia, apartments are the most commonly pawned item, luxury vehicles the second, and jade, expensive stones and watches make a close third. Compared to America, where individuals pawning jewelry and electronics worth about $150 are brokers’ most common customers, Huaxia looks more like a luxury department store gleaming with Cartier and rare jade statues.

Huaxiz upscale Peking pawn shop (from Quartz news story)

Huaxia upscale Peking pawn shop
(from Quartz news story)

Tepper then goes into some commentary on China’s “shadow banking” business. In the absence of established markets for commercial paper or most of the other numerous sources of business capital in the western world, especially short-term capital, businesses raise money on personal assets – largely residential real estate that is widely viewed (from outside China, anyway) as a bubble.

Should the long-expected crash in apartments come, the effects on China’s businesses would likely be disastrous.

American small business owners occasionally pawn Rolexes to meet a payroll, but this is not a way of life like it has become for China’s small (and not so small) businesses.

“There’s certain risks in regards to the shadow banking industry,” said Ismael Pili, head of financial analytics Asia at Macquarie Group. “1) It’s not well regulated, 2) There’s still opacity with regards to what’s going on and 3) It’s become a sizable portion of the economy.”

So the spirit of unregulated borrowing and lending continues. Today, shadow lending is the fastest-growing part of China’s financial sector, and JP Morgan Chase estimated that it accounted for 69% of China’s GDP—or 36 trillion yuan ($5.9 trillion)—in 2012.

Pawn shop treasure: Peace out

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In a sense, this is old news, but a Nobel Peace Prize discovered in a pawn shop is headed for auction in, of all places, Baltimore.

Identified as the Peace Prize, this medal is actually a Pulitzer Prize

Identified as the Peace Prize, this medal is actually a Pulitzer Prize

Old news, because the pawn shop discovery was made 20 years ago, when an alert collector recognized the hefty medal (nearly half a pound of 23-karat gold) in a pawn shop in some unspecified place. Presumably Argentina, where the medal was awarded to the foreign minister for helping to bring to a conclusion the Chaco War, a war fought over what turned out to be no oil.

You never can tell what will come into your pawn shop. From the story, it appears the pawnbroker may not have known it was a Peace Prize medal but knew enough not to melt it for the gold. At today’s prices (way up by the way, thank you Vladimir Putin), the metal is worth around $10,000.

As a collector’s item, the presale estimate is $50,000. That’s why at Kamaaina Loan, we say we will give you the highest amount based on either the metal weight, the artistic value or the collectible value.

Look who’s pointing fingers

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An ad on my Facebook page alerted me to a film coming out this summer to be called “Spent: Looking for Change.” It is said to be about the 70,000,000 Americans who are “underserved” by the regular financial system.

Now, Kamaaina Loan blog has often considered the unbanked and underbanked. Pawnshops are prominent among the “alternative financial institutions” who do serve the unbanked. No credit? Bad credit? No problem, as long as you have an asset to pledge.

It is clear from the “Spent” trailer that the film — posing as a documentary but actually a long commercial — will be a hit job on, among others, pawn shops.

Are pawn loans expensive? Compared to what? If you can borrow a million dollars, you can probably get it for 4%. If you want to borrow $160 (an average pawn loan), you will pay 20% in Hawaii, less in some other states; although where the rates are lower, fees are usually allowed. In Hawaii fees are not allowed.

Let’s say you need that $160 to pay your electric bill. Borrow on pawn and it will cost you $32. Borrow from the utility — by waiting until next month — and you will probably pay even more than $32 in late fees, plus maybe get a bad mark against your credit.

We wouldn’t recommend anybody take out a pawn loan every month to pay electric bills; but once in a while, when the bills outstrip the household budget, it might be the cheapest, most prudent alternative.

Now let’s get down to the nitty-gritty. Who is paying for “Spent”?

American Express.

Yes, one of the giants of banking that is not serving those 70,000,000.

Why? According to ABC News:

“Spent” will premiere this summer and is sponsored by American Express. The company currently offers two alternative financial products for the financially underserved, in their “Serve” and “Bluebird” prepaid debit cards.

Not really an alternative for the typical pawn customer sketched above, who, if he cannot pay his electric dill also cannot buy any prepaid debit cards.

 

 

 

 

 

 

 

Do we have too much aloha?

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The short answer is no. But a story at the National Pawnbrokers Association website got us to thinking about our experiences with reality television.

We have been approached four times by producers, and have done a “sizzle,” which is a short, hot pitch to be shopped around. Well, we are still sitting at the counter of Schraft’s, sipping on a malted and waiting to be discovered.

Our little Maui pawn shop is not alone.

Nancy Cejudo, the woman owner of Ben’s Pawn (yeah, Ben; she bought the business from a man), also had a look-see with a producer and, like Kamaaina Loan, was left waiting at the altar.

In an interview for the NPA blog, she declared the producer (also a woman) told her:

 “She’s just too nice.”

Not the worst kind of rejection note, but a rejection all the same.

The producer told her:

 

“Reality TV will continue to be exactly what it is. Some shows will be more compassionate than others.”

Probablky the best way to get picked would be to act like Jerry Springer and throw chairs, but we don’t plan on doing that. Farewell fame. It was nice to meet ya.

Just as well, maybe. The other day, we were looking at a reality TV fan site (www.tv.com) and reading the fan (if that’s the right word) comments on Hardcore Pawn. Now, we know the Hardcore Pawn folks and they are as nice as could be. All the nastiness on the tube is an act.

Some watchers don’t get it, which, we guess, the producers and advertisers count on. Anyhow, if this is what it would mean to get on the tube, maybe we’ll pass:

Ashley u r the worst person on the planet you rank right next to Satan that’s how evil you r

Next to Satan? Man, that’s harsh. The rest of the comments are just about as cruel. And, they don’t speak very well for the schools the Hardcore Pawn audience went to.

Greet each customer with a smile

Greet each customer with a smile