Assay Office Birmingham reflects upon the current gold market situation.
Many headlines have been written about ‘the new Gold Rush’ in the last 12 months, and the unprecedented rush by consumers worldwide to sell their scrap gold is old news. But as the gold price looks set to remain above $1,000 per ounce throughout 2010, and consumers remain in need of hard cash, the ‘recycling’ of old gold is likely to consolidate and become a permanent feature of the jewellery and precious metal trade.
High gold prices have been news for over a year now, impacting heavily on the UK jewellery industry and changing its shape for years to come. Prices have nearly doubled in three years, and for many consumers, for whom gold jewellery is an infrequent purchase, gold has priced itself out of the general gift giving market and become ‘special occasion’ only. While beads, brands and silver fill its place, the volume of gold hallmarked in the UK has dropped from its massive peak of 27 million articles in 2001 to only seven million in 2009.
Meanwhile, cash strapped consumers are trading in their scrap gold all over the world. Research from metals consultancy GFMS tells us that nearly 900 tonnes of gold was scrapped in the first half of 2009 worldwide, and in the first quarter of 2009 more gold was scrapped globally than was fabricated into jewellery. Unprecedented, mind-blowing figures.
The scrap gold industry has developed rapidly in the UK, undoubtedly assisted by the benefits of hallmarking which mean that the consumer knows what they are selling and the trader knows what they are buying. There are no legal requirements or qualifications for scrap traders, and the jewellery and pawn broking industries suddenly find themselves competing with entrepreneurs who have appeared from nowhere to participate in this lucrative market.
Inevitably, as always there are those who prey upon and exploit the vulnerable, and the media has embarked upon major campaigns to expose wrong doers. Where the consumer has been abused, whether deliberately or unwittingly, exposure is absolutely right and proper. However, some of the articles produced have displayed a frightening lack of understanding as to how our market or any commercial market works, and we need as an industry to continue to put the record straight. The researcher who bought brand new items of jewellery from a high street retailer and then compared in horror the minimal price offered for them as scrap would be well advised to carry out the same exercise in the car industry. The comparison would probably make the gold prices look exceedingly generous.
GFMS predicts that gold prices for 2010 will average $1,172 per ounce – $200 per ounce more than in 2009. With nearly 180 million gold articles hallmarked in the UK during the last 10 years alone, the scrap gold industry is likely to remain buoyant. As an industry we need to implement professional standards and be seen to be working to appropriate practices in order to restrict the growth of disreputable competitors.
The important factors are all about transparency: transparency as to what the consumer is selling – its fineness, usually evidenced by a hallmark, and its weight, preferably weighed in view of the customer on a properly calibrated balance; transparency as to what the trader is offering – the price per gram for nine carat, 18 carat should be readily available so the customer has the opportunity to shop around; and transparency as to the offer – giving the consumer the opportunity to decline it and go elsewhere without undue pressure.
Many column inches have been written about the variable price being paid for scrap gold, demonstrating once again an ignorance of the market. It is common sense that a trader in Birmingham’s Jewellery Quarter with only a poster to promote the service and literally a step away from a refiner will offer a better price than an upmarket independent jeweller situated 200 miles away. Likewise those who respond to TV advertising by requesting a ‘gold pack’ and then send their jewellery away by a ‘free’ postal service with a ‘free’ return guaranteed if they are not happy with their offer should expect a lower price for their gold as the company clearly has high marketing overheads which have to be financed from somewhere.
Just as jewellery retailers price the items they are selling at different margins according to their business model, so they will apply different margins to what they buy. The important thing is to be up front and honest with the customer.
There have been calls for the trading of precious metal to be regulated, but this is unlikely to happen in the near future. There are increasing concerns about money laundering and crime being encouraged by the scrap gold sector. It is crucially important that as an industry each trader adopts consistent transparent standards and acts with diligence if we are to continue to benefit from this unprecedented gold rush while still protecting our consumers.
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