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What A Falling Gold Price Means For Pawn Shops

Filed by KOSU News in Business.
July 26, 2013

William Roman wants to borrow money, but his bank won’t lend him any more. So he’s turning to his local pawn shop.

For Roman, a loan from the pawn shop is a lot easier to get. He doesn’t have to fill out an application. The people at the pawn shop don’t check his credit — all they want is something valuable, something they call sell if Roman doesn’t pay them back.

“I’ve pawned laptops, PlayStations,” says Roman. “If I’m not using it, then I’ll just go and pawn it.”

The main thing Roman pawns is his gold. Gold functions in the pawn-shop world much like houses did in the banking world: It’s a valuable asset people can borrow against.

When the price for gold was high, pawn brokers were happy to have it. Their customers took out bigger loans, and they were able to charge more interest. But the price of gold has fallen rapidly this year, and that’s left some pawn brokers in a bind.

“We made loans that we’re holding for people that were made in, let’s say, December, and in December, gold was $1690 [an ounce],” says Emmanual Samuels, a pawn broker in Brooklyn. Today, gold is around $1330.

Housing prices faced a similar decline during the financial crisis, and some banks that made loans against houses went out of business. But pawn shops aren’t facing that kind of risk.

That’s because pawnbrokers are pretty conservative. All the brokers I spoke to say they only lend amounts of up to 70 percent of the gold’s value — meaning if your gold is worth $100 today, the most they’ll lend you is $70.

Pawn brokers have a good reason to play it safe. They depend on their repeat customers.

They want customers to come back again and again so they can keep charging them interest. They want people like Roman to pawn a watch, pay back their loan and pawn it again. [Copyright 2013 NPR]

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