Rising prices mean big business for gold buyer, down times for sellers
BY JOANNE VON ALROTH Correspondent September 28, 2012 5:14PM
Paulie Kimco packages up a diamond at his Cash City Pawnbrokers in Alsip, Illinois, Tuesday, September 18, 2012. | Joseph P. Meier~Sun Times Media
Updated: November 1, 2012 6:07AM
When the economy gets rough, the price of gold kicks up — which has some businesses in the Southland seeing dollar signs.
“Investors have definitely seemed to catch the gold bug,” said Bob Lalas, of A-R Coins in Burbank. “We’re seeing more and more of them — business is booming.”
Recent stimulus measures by the Federal Reserve and foreign central banks, paired with sluggish hiring rates and a still-shaky housing U.S. market, have many worried about economic recovery. As a hedge against inflation and volatile currency rates, some investors buy gold.
Their current “gold rush” has hiked the prices of the precious yellow metal to their highest in 2012, with gold last week trading around $1,775 a ounce — topping platinum at $1,665. Analysts expect gold prices to hit $2,000 by year’s end.
Based on the behavior of investors he’s encountered, Lalas thinks it will go higher.
“It could go as high as $3,000,” he said.
Which translates to more cash in the pocket of those selling the contents of their coin collections or jewelry boxes. Pawnshops, in particular, have seen a spike in customers looking to sell their gold.
“We post the current price and what we pay (for gold) every day, and let me tell you, there are a lot of knowledgeable people out there,” said Paulie Kimco, owner of Cash City Pawnbrokers in Alsip. “They’re aware of gold prices. We’ve definitely been buying more gold jewelry than selling.”
At Cash America, a national pawnshop chain with multiple locations in the Southland, the boom means the ability to loan more money to customers and the potential to earn the company more in interest, said Jim Bennett, Midwest operations director.
But it’s not completely a win-win situation on the pawnshop front.
“It can be challenging to resell the pieces,” Bennett acknowledged.
Kimco is more blunt.
“We might have lines out the door, but our sales have been down 40 percent since last year.”
For Jimmy Geotis, owner of Worth Pawn Shop, the gold boom is double-edged. Like many gold-buyers, he can sell what he buys to refineries, where it’s melted down. A small amount is used for medical and electronic manufacturing, but most is retooled as jewelry or coins.
Yet he worries about the circumstances that bring some customers to him.
“I think it’s a shame that so many people are doing so poorly, struggling so much that they have to go to their jewelry boxes and sell something that’s precious just to pay bills,” he said.
Jewelry store owners are also seeing the flip side of the gold boom.
“I’ve been in business 29 years, and I don’t know that I’m gonna make 30,” said Rick Schialo, owner of Schialo’s Jewelry in Chicago Ridge. “Sales are definitely down; people are broke. I see people come in crying every day” because they have to sell their jewelry.
Traditionally, people will spend big bucks on engagement and wedding rings, as well as Christmas and special occasion gifts, Schialo said. Not these days.
“People can’t even afford to get married right now, so they aren’t buying rings,” he said. “And that gold chain you bought as a gift five years ago for $200? That same chain is now going to be $1,000. If you can’t even pay bills, you can’t buy jewelry.”
Schialo maintains as positive an outlook as he can, however. “Jewelry’s been around a long time, and people aren’t going to stop wanting it.”
And not everyone selling their gold is in dire straights; Geotis and Kimco note that they work with a fair number of jewelry dealers. Lalas says most of his gold-selling customers are canny investors who bought when gold was down two or more decades ago and are now taking profits to fund a big-ticket item such as a college education, new roof, a wedding or lavish vacation.
“They’re people who planned ahead,” Lalas said. “They’re not selling a high-school ring to pay a phone bill.”
No matter which direction the economy heads, all those interviewed said it’s unlikely gold prices will ever return to anything close to their pre-1970s levels.
“Gold’s been around for about 4,000 years,” Lalas said. “It will never be worth nothing.”