Gold jewelry owners have almost been as frantic as the price of gold itself over the last few weeks.
Front month gold futures spiked to almost $1700/oz leading up to last week's decimation, amid coronavirus fears and a widely growing acceptance that central bankers will once again be stimulating the global economy and supporting asset prices.
As quickly as gold rose, it fell. During last week's equities selloff, margin calls forced the price of gold futures to tank as low as $1564 on the Friday session, before finishing the session down $55, or about 3.3% lower.
All the while, people are frantically scrambling to try and sell their gold jewelry, anticipating that the price hike of about 8.4% in the precious metal since the beginning of the year may not hold.
Tobina Kahn, the president of House of Kahn Estate Jewelers told Bloomberg: "Old gold sales always jump when prices rise, but we’ve never seen a surge like this.”
Bookings for jewelry assessments were up 12% at her shop. She continued: "No one is saying, ‘I want to wait because I think gold will go up even more’. They realize this is time sensitive. It’s a flight-to-safety rally that’s based on fear.”
Little do the sellers know, they should be buying gold instead of selling it, for a true flight to safety.
And the sell off on Friday could actually trigger more selling. “Everyone is hedging their bets,” said Ash Kundra, co-owner of J Blundell & Sons Ltd. in London’s Hatton Garden jewelry district.
Scrap gold usually makes up about 30% of total global supply. Even though mining outputs were flat in 2019, scrap gold in play may have rose by as much as 2.5%. Most retail buyers pay a fraction of spot prices before melting down the gold and purifying it, before making it into gold bars. Other items with collectors value, like gold Rolex watches, are resold.
Empire Gold Buyers in New York pays up to 96% of spot. Chief Executive Officer Gene Furman said:
"A typical 18-carat gold wedding band weighing about 10 grams would gain a seller about $383 at a spot price of $1,600. A gold watch weighing about 3 ounces and purchased for around $1,000 in the 1980s would probably gain a buyer around $1,900."
Rohit Savant, an analyst at the research firm CPM Group said: "People have started to clean out their safes. They find a packet that’s been sitting there for 5 years, 10 years and they scrap it to take advantage of the higher prices."
In China, the selling landscape is the opposite, as sales of gold jewelry are set to plummet for the year amid the economic damage of the coronavirus outbreak.
In the U.S., the story is just the opposite. "People who have been sitting at home thinking ‘time for me to sell, time for me to sell' are coming out of the trenches right now,” Furman concluded.