Categories: Finance

Does The Rise Or Fall Of The Price Of Gold Affect Pawnbrokers?

The price of gold has been increasing over the last couple of years.It has reached $1,700 and looks set to reach $2,000. When the price of gold increases, there is a greater margin to be made on gold that was bought at a lower price when the price goes down, the opposite happens.

Pawnshops buy gold jewellery at 50% percent of the retail value or 80% of the melt value. So, if you have a ring that weighs 15 grams and is made of 18-Karat gold the pawnbroker will calculate the net gold weight by multiplying the karat value by the weight. This would be 18/24 = 0.75 x 15 gram = 11.25g. Since the price of gold is measured in troy ounces, the grams would have to be converted. 1 troy ounce = 31.103 grams. So the price of gold using the current spot price of say $1,700 would mean the price of gold is $1,700/31.103 = $54.657/ gram. Take the two and multiply them together $54.657 x 11.25 g = 614.89. A pawnbroker would typically offer 80% of that which means that you would get $490 for the gold jewellery.

Compared to what a gold buyer would offer, pawnshops have a greater spread because they cannot legally sell the gold in the 30 day period in which the pawn loan is valid. They may also have restrictions on how long they would have before they can legally sell it. It might also take them longer to sell certain items, if the demand for wedding rings isn’t high then it might take longer for pawnbrokers Brisbane to sell. It might take a lot more time for a pawnbroker to sell that precious gold brooch your grandmother left you.

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Most brokers buy gold when the market is declining and then sell when the market is lifting. Right now, the price of gold is pretty high and the economy is not the best it has ever been in the last decade. With the geopolitical tension and the economic risks posed by trade tariffs, Brexit, U.S politics, falling currencies and now – a global viral outbreak, this might not be the best time for pawn brokers to be buying gold. Pawnbrokers Brisbane buy when the market is down and they sell when the market goes up – that’s how their cycle works.

What all of this means to an ordinary person looking for a short term loan? When you have some gold jewellery to pawn or sell, he doesn’t have to fill an application out or go through the process of having his credit checked out. The only thing a pawn shop wants is something that is valuable that way they know they can get their money back by selling the item if you don’t pay the loan back.

Having gold jewellery is useful; it functions pretty much like property does in the banking world. It’s an asset that has value and people can easily borrow against it. However, when the housing prices plummet banks that have loans taken out using property as collateral also find themselves in a bind. When the price of housing in the U.S peaked in 2006 it began free-falling, causing the 2007-2008 recession. When the price was high, people were happy to take out bigger loans and banks could charge more interest but when the housing bubble burst, people could not afford to service their loans and banks were sitting with mountains of debt.

Pawnbrokers don’t have to face the same kind or risks that banks face because they are very conservative. The most you can get for your gold jewellery from a pawnbroker is 70% of its retail value. This means if you have gold jewellery that is worth $100 today the most you can get for it is $70. Pawnbrokers depend on repeat customers which is the main reason they play it safe. They want you to keep coming back often so they can keep charging interest.


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