New York: With gold prices at three-year lows, Scott Simon, whose family owns 18 pawn shops in Long Island and Queens, New York, is noticing a significant slowdown in business.
“When gold goes down, we are less busy,” Simon said. His stores — which do a brisk trade buying and selling gold — are in neighbourhoods with large Indian populations where 22-karat gold jewellery is a big part of weddings and other ceremonies.
A few customers are liquidating their gold holdings before prices fall even further, but most are “holding out because they think gold will go back up,” Simon said.
However, other jewellery stores in Queens said they were seeing buyers in response to the latest fall in gold prices. Gold prices fell more than 8 per cent on Monday to under $1,400 an ounce, heading for the biggest two-day drop in 30 years.
Overall, gold is down 20 per cent in 2013, and nearly 30 per cent from its all-time trading highs over $1,900 per ounce in September 2011.
Yet gold prices are nowhere near the lows of the late 1990s, when the precious metal hit about $250 per ounce. Even so, the recent dip in prices has Simon worried that he will have to adjust expenses or halt further expansion.
It is not just the now-ubiquitous gold retailers who need to rethink the viability of their businesses. With an official correction in gold, it’s time for investors to ponder the next move, too.
Weary shop owners
In New York’s big gold neighbourhoods — where a dozen or so retailers cluster on one street in Jackson Heights, Queens, or along Canal Street in Manhattan’s Chinatown - weary shop owners are constantly repricing every item in their crammed storefronts to reflect new prices.
“(Gold) dropped $90 on Friday, and we are suffering. We don’t have that kind of margin,” said Sunil Patel, owner of Alankar Jewellers on 74th Street in Jackson Heights. Patel said his customers come in armed with the latest gold prices on their smartphones and know to look for bargains.
After checking prices online, Sakia Begum, 44, was shopping at nearby Sona Mandi jewellers. “Online is one price, and in the shop it’s different. I thought, ‘Something is up, so let’s go buy something,’” Begum said, using her daughter as a translator.
At Karan jewellers, owner Sonia Verma said her store had been bustling with buyers since gold started to drop. “People are going crazy,” Verma said.
“I think this is the right time to buy,” said Suriya Masum, 24, who was looking to purchase gold chains at Sona Chaandi jewelers, another store on 74th Street.
Business at Fort Lauderdale, Florida-based GoldFellow, a gold-buying service that has 70 store-fronts nationwide as well as an online gold-buying site, started to drop off in November, just after the US presidential election.
Web traffic is down 27 per cent in 2013 through March. But Michael Gusky, GoldFellow’s CEO, expects to see an uptick in activity in April from people who are trying to sell their gold coins before prices dip further.
“When you have a day with a drop, you get two types of sellers. One is sellers of jewelry who feel like they’ve missed the big opportunity and are running to sell. You also see something more desperate - a big influx of people selling gold coins,” said Gusky. And because they likely paid a high price for those coins on the spot market, they are selling at a loss.
“The small guy always gets killed,” Gusky said.
Long view
Investors have been cutting exposure to gold, with total holdings at the world’s major bullion gold-backed exchange traded funds falling to their lowest since early 2012. Holdings of the largest fund, the SPDR Gold Trust, fell a further 22 metric tonnes on Friday.
Jason Toussaint, head of SPDR Gold Trust, urged shareholders to take a long-term view after Friday’s 5 per cent drop. Toussaint said investors need to ask: “Over 10 years, or potentially longer, does gold have a role in my portfolio?”
If the answer is yes, Toussaint said the dip in prices offers a good buying opportunity. For other investors, it might make more sense to take some profits from gold and rebalance toward equities, he added. Financial adviser Bucky Hellwig, senior vice-president at BB&T Wealth Management, suggests that investors maintain a small weighting in gold as a currency hedge. A nominal underweight position would be 2 per cent or less, although it varies from client to client, he said.
“The opportunity cost of holding gold is getting too high,” Hellwig said.
