Scrap gold takes the form of unwanted or broken jewelry, watches and even gold teeth.
After all, central banks have thousands of tons of the stuff in their vaults, and large investors trade in it every day.
So how can jewelry and other gold items make a difference.
Well, you have to get out of your Western mindset and consider the role that gold plays in areas like the Middle East and India. In those regions pure gold is worn as both jewelry and as a sign of wealth and prosperity. In a very real sense, people wear some of their wealth.
Like investors anywhere, these people buy more gold jewelry when they have plenty of money, and when the price of gold is low. Then they sell it, or some of it, when they need some cash and the price of gold is higher.
Even so, is there enough scrap gold being exchanged for cash to really make a difference?
“Around 500 tonnes of scrap gold entered the Middle East in the first quarter of 2009, compared with around 300 tonnes for whole of last year said Jeffrey Rhodes, the chief executive officer of INTL Commodities DMCC, an independent financial services firm based in Dubai. “
Reuters, May 3, 2009
Not 500 ounces, but 500 tonnes.
So yes, while tough economic times can move the price up as more people buy, there is an opposing force in play as well. Because tough economic times also drive people to cash in their scrap gold.