As gold's remonetizes itself, jewelry is turned back into bars

Prices Put Gold Trade in Reverse

By Maria Panaritis
Philadelphia Inquirer
Sunday, December 2, 2007

http://www.philly.com/philly/news/breaking/12032262.html

Longtime Philadelphia jeweler Bob Wolf has been around long enough to know you don't sit on your hands when gold is selling for $800 an ounce.

You buy, buy, buy! Used, used, used!

Normally, during the lucrative holiday season, Wolf and other jewelers would be selling new necklaces, bracelets and rings like candy in a dime store.

But the weak U.S. dollar and rising prices of oil and other commodities have caused gold prices to surge in ways not seen since the record highs of more than 25 years ago. Meanwhile, many cash-strapped consumers are too skittish to splurge on luxury items such as jewelry this year, and jewelers are reluctant to buy new merchandise when gold is so expensive.

As a result, the gold-sales food chain has shifted into reverse: Customers are selling banged-up baubles to jewelers; jewelers are selling to middlemen at markup; middlemen are selling to refiners; and refiners are melting it all down into very expensive and heavy gold bricks.

"The people go home with money. I, in turn, buy the gold a little less than market price, and the refiner's making money because he's doing the same thing," said Wolf, whose Wolf Jewelers has been a Center City mainstay at Seventh and Walnut Streets since 1961.

"Everybody's happy," said Wolf, 77, who sells some of the jewelry he buys to people who will melt it down. The rest he melts himself and turns into custom-made pieces designed by in-store craftsmen.

The used-gold frenzy is an economic byproduct of $800-an-ounce gold, combined with a tough consumer environment that has dampened sales generally.

"Black Friday was one of our worst days we've had in years," said Shai Cohen, 30, manager of New York Diamond Exchange, on Eighth Street near Sansom.

Sales of gold, diamonds, and other new jewelry were way down, he said. Prices, he said, are partly to blame.

"It's hard to explain to people why a certain [gold] piece today costs $300, whereas two years ago it was $200 and four years ago it was $100," Cohen said.

The only thriving aspect of his business this fall: used gold, or what are known as "scrap buys."

"Believe it or not, it's the only part of our business," Cohen said with a shrug of the shoulders.

His store is a throwback to 1980, when the rush to buy used gold last came to Jewelers Row. Large signs adorned store facades broadcasting can't-come-fast-enough opportunities to cash out. One of Cohen's signs declares: "Our Prices Will Shake You!"

On Jan. 21, 1980, when the precious metal hit $850 an ounce amid high inflation, lofty crude oil prices, and global political instability, Jewelers Row was papered over like one big pawn shop.

Jeweler Jack Kanoff looks back on the era with muted scorn and does not seem thrilled to see a repeat, even if on a smaller scale and with fewer in-your-face advertisements.

"A number of the merchants in the area put huge signs in the windows, 'WE BUY,' " said Kanoff, 79, a quietly confident merchant whose Kanell Jewelers recently celebrated 52 years in business near Eighth and Sansom.

Then, as today, merchants were reluctant to buy new bangles and bracelets at high prices, fearing that a sudden drop in gold would leave them unable to turn a profit on the new merchandise in their safes.

Kanoff resisted.

"We decided at that time -- we had already been in business for 17 years -- that we did not want to become a pawnbroker," he said. "We continued to sell our jewelry."

The surge to $800 and above in recent months is nearly double the price of three years ago. It is still well below the 1980 record, which adjusted for inflation would be $2,283.

On Monday, gold futures for December delivery closed at $826.50 per ounce. Its highs and lows have generally followed the strength of U.S. currency and the volatility of the stock market, said Marc Eisen, a trader of gold options on the floor of the Philadelphia Stock Exchange.

"People have been buying gold with the dollar falling," said Eisen, who has been trading for 12 years. As stocks and U.S. currency become less attractive investments, commodities become hot for investors, he said, driving up the price of gold.

"I didn't think it would get this high," Eisen added. "It keeps breaking records."

As the dollar strengthened against other currencies last week and crude oil prices dropped below $90, gold fetched lower prices, finishing Friday at $783.05 per ounce -- a $43.45 drop from Monday.

Until prices started to drop off markedly on Wednesday, business had been hot at Center City Metals on Jewelers Row.

Ed Rust, 44, was working in the basement shop with a magnifying glass strapped to his forehead and a scale at waist level. He was busy dumping Ziploc bags of gold jewelry onto the scale and paying jewelers and dealers. On Tuesday there was a steady flow in and out.

"It's crazy," said Rust, a printer before getting into the precious-metals business 12 years ago. Some days, he said, "there's 10, 15 people here at once."

Jewelers, he said, have been griping that fewer customers are coming in this fall to buy new gold.

"Everyone's complaining," Rust said. "They're surviving on scrap gold."

People like Rust are known in the industry as "accumulators." They buy gold jewelry, coins -- even dental work -- from dealers, and then sell them in bulk to refiners. One of the area's most well-known is Abington Reldan Metals LLC in Philadelphia.

During a recent visit there, smelters were seen reducing a 23-pound batch of bangles, bracelets, chains, and charms worth $180,000 into a molten block of liquid gold the size of a loaf pan.

"I would say we are probably doing about 300 percent more business than we were a year ago," said Howard Steinberg, chief executive officer.

His phone tends to ring off the hook while gold prices flash and refresh on a desktop computer screen.

Three years ago, when gold hit a then-16-year high of $455.90 an ounce, Steinberg was recommending that people sell their old jewelry and cash out.

"I can't predict that gold will go up much further," he said in a newspaper article at the time.

This rise has caught many by surprise -- not just Steinberg, who also recycles circuit boards and other industrial products for recovered metals.

But given this remarkable run, anything might seem possible. As recently as the spring, Steinberg attended a meeting of financiers during which several gold traders predicted prices would hit $1,100 by early 2008.

Even so, he will make only one very safe and logical prediction:

"The more gold goes up, the more, I think, exponentially, we'll recover metals," he said.

* * *

GATA is grateful for financial contributions, which are federally tax-deductible in the United States.