The House of Kahn Estate Jewelers is proud to be featured on Bloomberg News, one of the world’s largest and most trusted information sources, and Bloomberg Television, the only worldwide 24-hour business and financial television network. This article and news video discusses the exciting phenomenon of the rising price of gold.

Gold at $1,000 Spurs Sales of Old Jewelry as Scrap Rises 22%

By Millie Munshi

Sept. 17 (Bloomberg) — As gold jumped above $1,000 last week, Mark Murado decided to trade in his gold bracelet and necklace, earning a sixfold profit.

“With the gold prices so high, and the recession going, why not sell something I never wear?” Murado, 30, of New York, said three days after the metal surged to $1,013.70 an ounce. He sold the jewelry to EZSellGold Inc. in Manhattan for $3,500, up from the $500 purchase price in 1994.

While Standard Bank Ltd. predicts prices will rise 7.8 percent by the end of the year to $1,100 and Barrick Gold Corp., the world’s biggest producer, is spending $5.6 billion to bet the rally will continue, consumers are speculating that price gains are limited after a nine-year rally. Scrap sales, including used jewelry, will rise 22 percent in 2009, said Philip Klapwijk, the chairman of industry researcher GFMS Ltd.

Individuals are selling as the deepest recession in more than 60 years sends the U.S. unemployment rate to the highest level since 1983. The slumping economy has erased $13.9 trillion in household wealth, according to the Federal Reserve. Investor demand for a refuge from tumbling prices of financial assets sent gold up 31 percent in the past year.

Murado would have received a gain of $634 by putting $500 into the Standard & Poor’s 500 Index in 1994, excluding dividends, compared with the $3,000 windfall from his bracelet and necklace.

Earlier Slump

The jewelry wasn’t worth nearly as much five years ago, when gold lingered around $400 an ounce on the Comex division of the New York Mercantile Exchange. The precious metal also fell as low as $253.20 in 1999, a year when the S&P rallied 20 percent and the U.S. economy grew 4.8 percent.

Gold jumped to a record in March 2008 as financial turmoil boosted the metal’s appeal as a haven. The price dropped to a one-year low of $681 on Oct. 24 as the S&P headed for its biggest monthly loss in 21 years, prompting traders to sell assets to raise cash. This month’s rally above $1,000 was sparked by signs of a rebounding economy and concern that increased government spending will stoke inflation.

“There’s not that much difference in value between $950 or $1,000 gold,” said Michael Musheyev, an EZSellGold co-owner. “But when everyone sees that $1,000 level or they hear about it in the news, it makes them go gaga.”

At the House of Kahn Estate Jewelers in Chicago, inquiries from people interested in selling gold have jumped fivefold in two weeks, said Tobina Kahn, a vice president. At Cash4Gold LLC, which calls itself the world’s biggest used-gold buyer, queries are up “significantly,” Chief Executive Officer Jeff Aronson said, without being more specific.

Recession Push

“Every time we hit the $1,000 mark, we see this phenomenon of people stepping in to sell their gold,” Kahn said. “They sell their old jewelry sitting at home, things they got as gifts. They need instant money.”

Demand for the precious metal pushed gold to a record of $1,033.90 an ounce in March 2008. The gains enticed jewelry sellers and sent scrap supplies to an all-time high of 1,218 metric tons last year, said GFMS, the former research unit of South Africa’s second-largest gold producer.

Scrap supplies will jump to a record 1,485 tons this year, Klapwijk said in a Sept. 14 interview. The gains may “play a role in capping” the bullion rally, said Klapwijk, who joined two other managers to acquire a unit of Consolidated Gold Fields in 1998 to create GFMS. Scrap gold represents about 25 percent of global supply, according to the World Gold Council in London.

Rising Price

The interest in bullion has kept the influx of scrap from depressing the market, said Aronson, a co-founder of closely held Cash4Gold in Pompano Beach, Florida.

Gold futures have surged 15 percent this year, touching an 18-month high of $1,023.30 yesterday on the Comex, and are heading for a ninth annual gain. Scrap supplies rose 39 percent to 880 tons in the first half of the year, according to London- based GFMS.

“With the amount of gold that people on the investment side want right now, there’s never a situation where you’re oversupplied,” said Aronson, who is 36.

Analysts expect gold to keep rallying. Gold for immediate delivery in London will average $959 an ounce in the fourth quarter, up from $928 since Dec. 31, and will reach $988 in the second quarter of 2010, based on the median of estimates collected by Bloomberg from 18 analysts.

A separate survey by Bloomberg last week showed 10 of 12 analysts, traders and investors expect gold to top its record.

Barrick’s Bet

Toronto-based Barrick, citing “an increasingly positive outlook on the gold price,” said in a Sept. 8 statement that the company will eliminate sales contracts for about 9.5 million ounces of gold at fixed prices. To fund some of the costs to exit the agreements, the company is selling $3 billion of stock.

Gold held by Jersey, Channel Islands-based ETF Securities Ltd.’s exchange-traded products climbed to a record of 8.272 million ounces (257.3 tons) yesterday. Demand for gold through exchange-traded funds will rise to 700 tons this year, from 322 tons last year, Barclays Capital said on Sept. 11.

At Empire Gold Buyers in New York, President Gene Furman said he’s seeing customers trading in luxury brands for cash. “They’re looking to sell their Tiffany and Cartier jewelry,” Furman said.

“The days are over when gold was just a luxury jewelry item,” said Kahn in Chicago. “Now, people want to sell it or melt it.”

For Murado, the prospect of higher prices means he will probably unload more of his jewelry.

“Everybody is interested in buying gold now, so I’m going to be selling every day when the price is above $1,000.”

— via Bloomberg News

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House of Kahn Estate Jewelers
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USA
312-943-9937

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561-655-3743

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