My Two Cents: Last Thursday, EZCORP Inc., a pawn shop owner and operator in the United States, reported earnings and in that release they had some very interesting things to say that relate to the gold market. Take this line from their press release where they discuss why they are lowering guidance.
This revision in guidance is due to slightly slower than expected growth rates in the U.S. pawn business for both loans and sales (including scrap sales) as a result of customers’ using a greater proportion of general merchandise instead of gold to satisfy their immediate cash needs.
Furthermore, apparently the company had this to say on their conference call: ” “Frankly, yes, their piggy banks are certainly emptier than they’ve been and what they have, they’re hanging on to.”
As if the precious metals market is not confusing enough right now, let me give you my take. I think this may actually hold much more significance to the silver market than the gold market. For one thing, for much of last year whenever I went to my local coin store I would see a considerable amount of scrap for sale. This saddened me as people were exchanging real money for paper, probably just to make the utility payment. In any event, the point is people were definitely selling scrap silver. At the same time people were pawning their gold. If folks have already pawned all of their gold, then my guess is that much of the silver that was for sale at these prices is now off the market. It was this scrap that allowed the manipulators to hold the price in check for these last 18 months or so, but if I am correct and silver scrap at these prices is largely sold then we are setting ourselves up for a cleared market and a major rally later this year.
Read EZPW’s full press release here
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Michael, based on the traditional retail mark up of metal over the years – jewelery shops etc.- of some 6 to 8 fold (Tiffany and Birk’s had an even higher premium due to “name”), the average per ounce paid all through the ’80s and ’90s was around $30-$40 per ounce both in the US and Canada when the spot price was averaging $5 or so…I predicted some ten years ago that when silver went past $30, a lot of this metal would come back to the scrap market….I was both right and wrong. The dumb crowd (including thosel that got their sterling wares as gifts) sold early ($15-$20 spot) and were ripped off for $0.20 per gram at the cash for gold places. The crowd (generally middle class) who bought their own wares,,,or were sophisticated enough to notice retail value of the wares tended to wait longer….The great glut from the first bunch is now over,,,and there is a relative dearth of metal coming into the dealers in scrap. And yes, there are a lot of scroungers out there too that still sell immediately for the income this provides -nothing wrong with that….But up to three years ago it was no problem to go out on a Saturday to visit yard sales and acquire an average of a couple of ounces of sterling for pennies on the dollar to the metal value received. The good ol’ days, how I miss them!
I have yet to sell a single gram of the stuff. Note that the Cash for Gold places still pay only $0.50 per gram and that is still too low!
FWIW,
L.
Great post. How did you find that? Seems really valuable.