We see this happen, too

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From  a summary of a new episode of “Hardcore Pawn,” set on a day when gold has taken a big drop (although the claim that it dropped 5% is bogus — that would be around $75 and gold doesn’t move that much in a day):

When a woman came into pawn her gold bracelet, she was told she could get $250. She had received $300 in the past for it and demanded the same. When she was told that the price of gold had dropped, she told the woman at the window that it was not her problem and wanted to see a manager. When Ashley came to confront her, she called her out to the parking lot, without Byron. Ashley handed her back her bracelet and told her to have a good day.

At our Maui pawn shop, we have a lot of customers who pawn the same item over and over. They know and we know what the loan value is, and writing up those loans goes really fast.

Maui is a tourist island, and plenty of workers in the visitor industry have busy and slow periods. They use pawn loans to smooth out their cash flow so they don’t get behind in  their bills.

Most of these regular customers are quite sophisticated about the value of their collateral. Unlike the lady in the “Hardcore Pawn” episode, they don’t get bent out of shape when they’re told they cannot get as much as usual.

On the other hand, sometimes when gold is rising, a Kamaaina Loan pawnbroker will be asked for, say, $100 and will check the New York gold price and say, “You know, you can get more for this now.”

Some take more, some say, “No, that’s all right. $100 is what I need.”

The really sophisticated ones recognize that some lendable items can lose a lot of their appeal overnight. This is true, for example, of video game systems. When the new Xbox or Playstation comes out, the old ones lose a lot of their value. Since the game system makers usually announce new versions well in advance, the value actually starts adjusting well before the new version is released.

What are they worth now?

What are they worth now?

Something similar happens with cellphones. They are very lendable, but every new version of the iPhone makes the old ones worth less. There have been so many versions of the iPod that it takes a maven to keep straight the market value of the various models and features.

Gold, silver and diamonds are less predictable. They aren’t coming out with a new version of gold.

Gold today is under $1,300 an ounce. It was over $1,300 a few days ago. No telling where it will be next week, particularly since the issue of the government shutdown is still unsettled as this is written.

 

Why did gold swoon?

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Don’t get your hopes up. By the end of this post, we will not be able to tell you. But watching gold take a $40 swan dive the morning the government shut down raises plenty of questions.

Here at Kamaaina Loan, gold transactions make up over half our business, so we are intensely interested in price movements. But we have no influence. We buy and sell based on each day’s spot price in New York.

Also, we make no predictions about which direction the price will go. All we know is that it will go up, or down, or (rarely) stay the same. Recently, gold has been steadily dropping. After briefly hitting a record$1,900, it is now selling in below $1,300.

Last week, Goldman Sachs and other big operators predicted that during 2014, the price would average in the $1,200s. This seems bizarre. The Federal Reserve is printing money at the rate of $85 billion  a month, which is supposed to make money worth less, compared to gold.

And you’d have thought that shutting down government would be bad for stocks and dollars and good for gold. Wrong.

The stock market held steady and gold made one of its biggest one-day moves all year — a move down.

Bloomberg News reported that big players were betting that the shutdown would not last long, thus shortcircuiting any flight to precious metals, which is a usual response in troubled times. Go figure. One analyst told Bloomberg:

“While the standoff is not a great thing, the effects seem to be limited, and we are not seeing investors rush to gold for its safe-haven quality,” Frank Lesh, a trader at FuturePath Trading in Chicago, said in a telephone interview. “Riskier assets like equities seem to be in favor.”

However, Bloomberg also found an analyst, Ron William, who thinks gold will hit $2,000 next year, which would be a record.

Whatever, we stand ready to buy, sell or lend on gold every day.

A reliable kind of gold

A reliable kind of gold

 

‘Marketplace’ explores pawn business

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National Public Radio’s Kai Ryssdal decides to see if the ups and downs of pawn business are useful in tracking the economy, the way car sales or home turnover are used.

Michael Mack, a fourth-generation pawnbroker explains that, yes, pawn shops are affected by swings in  the overall economy, but buffered, too. When booms come, the retail side improves, while the loan demand may drop; and vice versa in slow periods.

“Pawn shops do well in most every economy,” he argues. “We loan more money in the downturn; we sell more merchandise in the upside. So we try to hedge ourself both ways.”

At Kamaaina Loan, we use the RolexIndex. When the real estate agents start bringing in  their Rolexes, we know the downturn has begun.  But that’s Maui, where real estate turnover, especially on the high end, is more important to the overall economy than in, say, Dubuque.

Mack also lets Ryssdal know that pawn changes, too. When he takes some big collateral (like a plane), he does not hope the borrower fails to repay.

In the old days, Mack told Ryssdal, that might have been the thinking — make a big score by selling the big collateral. But no longer.

Today, pawnbroking, like many another sector, is a relationship business. Mack’s Max Pawn and our Maui pawn shop  both operate on the theory that it is to our advantage to have borrowers repay and reclaim their collateral. And, Mack says, maybe return later to do another transaction. We don’t want to keep your gold ring. We want to keep you as a customer.

Kai Ryssdal

Kai Ryssdal

The profits from selling collateral are never as juicy as they look to outsiders. Just ask any mortgage lender stuck with a foreclosed house over the past six years or so.

How your old gold becomes new again

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crucibleGold is recycled more than any other substance. Here is a 9-minute video showing how old jewelry is turned back into pure gold. The video isn’t the clearest, but the narration is OK.

At our Maui pawn shop, we melt down old jewelry in a small crucible. No matter what goes in, the product that comes out is almost always just under 60% gold (because of the average mix of 10-, 12-, 14-, 18- and 22-karat gold that people bring us).

That’s just a preliminary step. The video by The Precious Metals West Blog shows what happens next. We at Kamaaina Loan don’t do this; it’s an industrial process that uses a very nasty substance, aqua regia (a mixture of hot, fuming nitric and hydrochloric acids), that only pros with special equipment mess with.

Aqua regia dissolves gold; it is the only thing that will. This is how we recover diamonds. The gold is dissolved, but the diamonds are not affected.

This is safer than trying to pry diamonds from settings, which can break or chip them.

 

Education of a pawnbroker

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In principle, pawnbroking is simple. The borrower presents some portable collateral and the lender gives him money. Later, they settle up and reverse the exchange. If the borrower can’t pay, the broker keeps the collateral and tries to sell it to recoup his loss.

And most of the time, it is pretty simple. Probably three-quarters of the deals at Kamaaina Loan And Cash For Gold’s Maui pawn shop are for gold in one form or another, or silver  or other precious metals. Most of the rest are for familiar items like Playstations, iPods, surfboards or fishing poles.

But the residue? Some curious stuff comes over the counter.

A good place to find it in at 50 N. Market St., where we sell fishing gear, golf clubs and tools. Most of the tools are common enough: battery-powered drills are probably the most numerous item these days. (Corded drills are becoming rarities, almost.) But ask Bob to show you around and you’ll likely encounter a tool you not only don’t have but never heard of.

Today’s exhibit is a professional grout scrubber. Yes, it was new to  Bob, too. Turns out that for a big tiling job, with several tilers laying down tiles, it pays to have one worker follow behind them cleaning up the new floor with a power scrubber and massive sponge.

The one we have is made by Rubi, and while it’s used, our price is less than a third of the price for a new Rubi Spomatic 250 Electric Sponge.

That’s why it pays to stick your head in the door every few weeks, even if you’re not shopping for anything in particular. You never know when we’ll have something you never knew you couldn’t live without.

Warning: Fake US silver coins flood Canada

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According to the Hamilton (Ontario) Metroland news service, police have recovered “hundreds” of fake US Silver Eagles.

Although described as “silver dollars,” the fake coins — silver and nickel plate over brass — are also described as 10 ounces in weight. That would make them bullion pieces in a coin shape, since a silver dollar weighs 1 ounce.

The release (from police) says the suspects got the coins from online auction sites, before selling them to local shops. They targeted businesses that were either busy or short-staffed, so buyers would spend less time verifying the coins’ authenticity.

At today’s prices, a 10-ounce silver “coin” has more than $220 of silver in it. So 500 fakes means the scammers hit the Canadian pawn shops for somewhere in the neighborhood of $100,000 .

The story concludes with good advice:

Police say if someone is willing to sell a coin for less than its silver value, they’re most likely trying to pass off a fake. They also warn the public to buy coins and other precious metals through reputable dealers who take the proper steps to check authenticity.

The release did not say what online auction sites were moving these “high-quality fakes, professionally manufactured by an unknown source.” But Kamaaina Loan Blog had no trouble finding a site selling purported 1-oz Eagles for less than $19. Since that coin, if real, would have more than $22 in silver in it — and would retail, in 1-coin sales, for around $30 — we are suspicious.

A roller-coaster ride in India

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Although gold is the international store of value, accepted everywhere, there are still local variations in the way people interact with their gold, and India is fascinating in this respect.

It is the biggest market for gold, since Indians like to keep gold as a form of savings, and gold jewelry is part of a bride’s dowry — and her family’s emergency financial backup.

In India, ordinary commercial banks will make a loan against your gold, something US banks are not accustomed to doing.

In both countries, loans against gold are the mainstay of pawnbrokers’ business.

So when the price of gold flops, a much greater proportion of the population is directly affected in India than in America. And it flopped earlier this month.

This story  from Yahoo News rounds up some reactions when gold was down to as low as $1321 an ounce.

But that was 1o whole days ago, and gold in New York is up to $1474 (a gain of nearly $12 just over the last day), so perhaps some Indian lenders are breathing more easily today.

Interesting nuggets from the story:

Last year, India pawnbrokers were lending about 90% of the metal value of gold jewelry. But in India, pawn loan durations are longer. In Hawaii, a pawn loan is regulated by law at 60 days (30 plus another 30 if the borrower does not redeem after 30. Pawn loans can be rewritten after 60 days, but most are either redeemed or abandoned by then.

Even when defaults jumped after the price dropped, Indian gold borrowers were still reclaiming their gold at rates well over 90%. This is roughly similar to Hawaii experience.

India’s Reserve Bank told commercial lenders who were backing lenders taking gold as collateral to limit their exposure to 60% of the metal value of jewelry held as collateral. So even when gold swooned by 30%, that should not have had any destabilizing effect on India’s overall financial system.

 

. . . and what about diamond investing?

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With gold breaking back from its 9-year runup — as this is written, New York spot is $1372 or about $180 less than it was just a couple weeks ago — investors are wondering what other things there are (aside from mutual funds) they could put their money in.

What about diamonds, for example?

For starters, the last few years have been the only time in a century when it didn’t matter that diamonds (and gold, too) don’t earn interest. Neither does cash in the bank nowadays.

On  the other hand, a graph that shows a steady rise in diamond prices over half a century can be misleading.

A graph of Hawaii housing prices over the 50 years from 1955-2005 would look similar, but as Paul Brewbaker, the well-known local economist used to remind us, the rate of increase was only about the same as for a passbook savings account. (This situation has changed since the crash of 2008; today passbook savings accounts don’t grow, and housing prices went over a cliff.)
Anyhow, the point is, you have to watch out for money illusion and always remember the power of compound interest. $500,000 sounds like a lot more than $50,000, but $50,000 compounded at 4% gives you $500,000 in half a century. We should all live so long.
Here at Kamaaina Loan, a big move in the world price of gold brings in more business. Why?
Different strokes for different folks. The gold optimists think the price is unusually favorable and want to buy more. The gold pessimists have decided the gold bull market is over and want to cash out and get into something else. Should it be diamonds?
Here are some things to think about diamonds.
Diamonds are rated by the  “5 Cs” — cut, color, clarity and size (carat) and cost.
Cost is not an inherent character of a stone. It varies. And the other 4 Cs are subjective.
There are different diamond grading services because people have different opinions. This is not true for gold. A .9999 gold bullion coin is the same whether it comes from Australia or Austria (ignoring the very slight premium paid for especially popular coins).
Let’s consider a one-carat, internally flawless, round cut diamond of good (d) color. Rapaport, the leading price service and a big buyer and seller of  diamonds, reported the asking price for such a stone was $27,000 in April 2011. In August 2012 it was $28,00o. The latest report has the asking price as $28,400.
Not a lot of change over two years.
Now let’s look at gold. It was selling at $1556 in April 2011, and a report of the time said the recent changes “had the look of past silver and gold price peaks.”
Wrong!
In August 2011, gold was up to $1861 and it briefly passed $1900 a few weeks later (though only on intraday trades; gold has never closed over $1900).
Today, gold is $1372.
So, would you rather have put your money in gold or diamonds?
Inflation has been low over the past two years, and diamonds have just about kept up. Gold was way ahead of inflation for a while, now it’s way behind.
So, if you think you were so smart you would have realized gold was peaking last autumn and would have sold, you should have bought gold.
There’s more to consider if you want to try diamonds. Besides the 5 Cs, there are other factors, like scintillation, that strongly affect the value of a stone. Unless you are an expert yourself, you need to have a GIA-certified gemologist along with you. And while you may see some dealers pushing stones that have ratings from other sources (like EGL), know that GIA is the (ahem) gold standard of diamond grading.
So if you are considering selling your gold and getting into diamonds, or selling your diamonds and getting into cheap gold, or if you just need cash, we stand ready to buy and sell.
Know this. Kamaaina Loan has a graduate gemologist on staff and is GIA-certified.

Pawnbrokers should be smiling

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IDEX Research finds that in 2012 for the first time, sales in America of jewelry and fine watches exceeded $70 billion. It is not clear from this story at National Jeweler whether resales were counted or not.

Our guess is not. But pawnbrokers should be happy anyway.

First, it gives more Americans more stuff to pawn if they feel like it. Second, it provides the wherewithal for pawn shops’ important business in recycled (second-hand, vintage, collectible, historical, retro) jewelry.

Bigger pie, bigger slices.

The percentage increase in the fine jewelry business was not as great as in 2011, but that year the prices of gold and other precious metals zoomed. In 2012, metals’ prices were up, but not as much, so the gain came from more sales.

That is, more Americans felt able to afford fine jewelry and watches last year. As our source for this story at Little Green Footballs notes, that should be taken as a vote of confidence in the overall economy.

In case you are curious, bling beats Bowser. Pets International says dog food sales are around $10 billion.

 

 

 

Pawn 101: ‘Rogue’ gold buyers

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At the risk of sounding like a broken record (do young people even know what that means?), we are returning to the problem of dishonest gold buyers. Because the problem is not going away.

Here we link to an interview with a National Pawnbrokers Association vice president on the subject. Ric Blum makes a couple of points that Kamaaina Loan blog has not spent much time on:

First, “there are more businesses buying gold than just pawnshops. Almost every jewelry store in the country is now buying gold. Gold is being bought in flea markets, barber shops and auto repair facilities. Many are unlicensed and do not have the proper ‘legal for trade’ scales.”

Second, “Another popular scam is gold buying parties. These are usually ‘sponsored’ by a local person who is encouraged to invite all of their friends over to their house and bring their jewelry to sell to a ‘gold buyer.’ Besides not often paying a fair amount to the sellers, there are usually kickbacks being paid to the party sponsor.”

Blum says the problem is tough for law enforcement — especially if you are imprudent enough to mail your gold to somebody on the Internet. Even for local rogue buyers, enforcement is often low on the priority list for overstretched police departments.

You have to protect yourself.

Read the whole thing, but take this away: Do not mail off gold. Do check with several local buyers and compare offers.

We’d add: See us last. You’ll get the highest price that way.