The falling price of gold is hurting the pawnbroking business

The falling price of gold is hurting the pawnbroking business

Dec 7th 2013 | From the print edition

TO WHOM do pawnbrokers turn when money is tight? On December 2nd Albemarle & Bond (A&B), a British one, put itself up for sale in the hope of staving off bankruptcy. Desperate to raise cash, it had already resorted to melting down unsold gold jewellery. It is not the only pawnbroker facing hard times. In November EZCORP, one of the world’s biggest, announced a 76% fall in its annual net income. The share price of H&T, Britain’s largest pawnbroker, has halved following a slump in its profits.Only two years ago A&B was hailing “the age of the pawnbroker”. Profits in the industry had hit record levels, thanks both to the recession, which had left more people scrambling for cash, and to the rise in the price of gold, which (in the form of jewellery) is one of the items most often pawned. Both of these tailwinds have since subsided. The economic outlook is improving in most of the rich world, and gold prices have fallen by more than a quarter since January. This has dragged down the value of jewellery the brokers have bought in recent years, and has also crimped new lending, as the value of items being pawned has fallen, points out Andrew Watson at N+1 Singer, a stockbroking firm.

The damage done by the falling gold price has been amplified by the decision of many pawnbrokers to get into the gold-scrapping business. This involves buying gold jewellery outright, rather than accepting it as collateral, and melting it down for resale as bullion. Stocks built in this way are now worth far less than the pawnbrokers paid for them.

The basic business of pawning, however, is holding up. According to Ray Perry at the National Pawnbrokers Association, revenues in Britain will grow by about 8% this year. In America, the trade’s profile has never been higher, thanks in part to “Pawn Stars”, a reality-TV show about a pawnshop in Las Vegas. So far this year, revenues from pawnbroking at America’s three biggest publicly-traded chains have continued to increase. This trend is likely to continue, according to Marketdata Entreprises, a consultant. It predicts that pawnbroking revenues in the United States will grow 28% between 2012 and 2016.

Pawnbrokers offer those in need of a brief loan a relatively good deal in several respects. Pawning items does not normally require proof of income; neither does it imperil credit ratings. As items are forfeited when payments are not made, borrowers do not accrue ever more burdensome debts as interest builds up. And whereas payday lenders charge annualised interest of up to 6,000%, pawnbrokers are less gouging. British ones levy 96% on average; Singaporeans, less than 20%. That should redeem the industry in the long run.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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