The stream of Russians flooding jewelry stores to make purchases in the run up to the coming New Year overshadows yet another stream of other Russians making for pawn shops these days. Those who have money buy gold. Those who have no money sell it. There wouldn’t be anything unusual in it if not for the snappier attitude of pawn shops. The number of street dealers who buy gold and gold-containing electronic components probing people near the metro and railway stations and popular electronic markets also swelled. Moscow companies engaged in recycling scrap containing precious metals complain that the waste matter they used to get from factories went up in price and this will increase the cost of gold they extract. Supply is not always abreast of the progressing demand for the yellow metal, which explains the alertness of those who buy it in with a view to offer it on the market later.
The MK v Pitere daily says that according to different estimates, approximately 150 000 to 500 000 people use the services rendered by pawn shops in Saint Petersburg, the Russian northern capital. Pawn shops appear to be one of the major indicators of people’s financial solvency, the daily writes noting that Saint Petersburg inhabitants are now pledging namely their grandmothers’ earrings and rings. The number of outstanding loans at pawn shops is growing slowly but with an upward trend. Although everything should be otherwise. On the New Year’s Eve, people are eager to get rid of their debts (such is the national custom here) buying out almost totally all the things from the pawn shops. However, 2009 may become a miserable exception from the rule. In another article the daily says that pawn shops take gold as precious scrap at the price of 300-400 roubles per one gram.
Besides, the activity of pawn shops and street dealers is spurred by the scarcity of high-quality gold on sale. According to the MK v Pitere, this scarcity is worsened by smuggled goods accounting for 40 to 60 percent of the Russian market. The daily says the quality control exercised by the State Assay Chamber is inefficient. In theory, gold jewelry pieces bearing its hallmark can be considered genuine. However, the point is that the majority of jewelry pieces checked by the Assay Chamber are subject literally to superficial control: only some scrapings stripped off the outer metal layer and tested. Essentially, this guarantees only that the outer layer of a jewelry piece is really gold, while the nature of the back layer remains a mystery. Some of the jewelry pieces may be cross-cut to make a detailed chemical analysis. But again, such a procedure may be applied to only one out of a whole parcel of similar items. And if other items will differ from the checked sample, the Assay Chamber will not bear any responsibility. Now, there is one more thing to ponder about. Currently, only one half of all jewelry pieces in Russia bear the state hallmark.
Ultimately, all this serves to increase pressure on the gold market and particularly on its investment component. Those having not enough money to convert it into bullions bought from a bank are trying to buy high-quality jewelry, which is rather scarce. The eagerness to earn on this kind of shortage induces pawn shops and street dealers to greater efforts offering more flexible terms to the population. This process is conspicuous not only in Russia, but in other countries as well. For instance, in Italy such developments are the subject of justified concern for the authorities making them pay close attention to this problem. As it is disclosed by the Liguria Business Journal covering economic and marketing problems in the Italian region of Liguria, there has been a significant growth in the number of “gold buying centers” in the majority of Ligurian cities going on for some time. This is a very pronounced reality, which is currently toppling down in a resolute way the conventionally biased attitude towards the origin of gold bought at such centers or to the activities they are engaged in, they journal says. This is just because now, besides specialized stores, many jewelry stores (if not all of them) also tend to buying gold, silver and gems from individuals either paying them in cash or offering some goods in exchange. However, under the threat of utterly harsh sanctions the merchants buying gold or used gold jewelry must request identity cards from those who sell such gold and to enter their ID details in the appropriate logbook, which is then scrutinized by the police. The ground for such stringency is evident for it deals with control over “gold changing hands” and is meant to prevent any illegal activities, such as receiving and keeping stolen goods, as well as to curtail possible illegal and concealed transactions related to reinvesting illegitimate capitals.
The merchant buying in gold (whether through a regular jewelry store or a specialized point) is re-introducing used jewelry into circulation thus facilitating a wonton expansion of the second-hand gold market, which in this way is turning if not into an autonomous market but then at least into a business parallel to the conventional jewelry market, according to Liguria Business Journal. It is as well undeniable that along with the growth of the pawn-shop segment in recent years and increased economic hardships of the population in need of money to buy other commodities, the gold-buying business became really obvious demonstrating the emergence of some kind of independent branch of economy. In other words, demonstrating the appearance of stores acting more as buyers, not sellers. In the journal’s opinion, these new gold buying centers (which have no scruples about promoting themselves by way of TV or newspapers) use psychological factors to suit their own purpose such as the false-shame-based reluctance of some people to go to the jewelry store where once they made a purchase to re-sell there their jewelry due to economic necessity.
One way or another, both in Russia and abroad such trends reflect the current state of affairs in economy and the current attitude of people towards it. The gold whirl described by mass media on either sides of the border mirrors the current realities: some people “discard” money converting it into more reliable assets, including gold, and thus pushing up prices; this in turn forces others to take their gold things to pawn shops to replenish their empty wallets and thus meeting the growing demand for the yellow metal. As a “friendly interface” on the boundary of these counter currents there come up gold buyers which are interested to keep this market warmed up, that is out of control. The crisis environment is just playing in their hands. At this point it would be quite appropriate to mention the forecast given by Canadian bank ScotiaMocatta, a world leader in precious metals trading, cited by Prime-TASS in its Gold Mining News Bulletin: If people lose faith in the financial system and their currencies “the growing trend in wanting some gold as (a) store of wealth may start to snowball.”
