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.