Jozi City Feature

The 24-carat dream

The city of gold has not lost its Midas touch. Cash-for-gold shops are flourishing all over Johannesburg’s CBD. Natália Ribeiro investigates the reasons behind the recent gold rush.

 

Security guards, bars on the front door and 24-hour camera surveillance: the Paymaster gold shop on Commissioner Street looks like a bank.

Customers, mostly male in their late 20s, come all day. The queue is long. “Let’s get the money babe,” one customer says. Most traders leave the shop with large amounts of cash.

The Johannesburg central business district (CBD) has turned into a cash-for-gold paradise. As the precious metal price hits new records, more shops that buy gold and sell it to refineries enter the market.

Paymaster, like many shops in the CBD, exchanges gold jewellery, coins, watches and antiques for cash. It is a promising business. During the last couple of years the gold price has exploded, reaching levels close to $1 900 (about R14 700) per ounce. A decade ago it was below $400 (about R3 000).

The signs are everywhere: We buy all gold jewellery and scraps; We buy Krugerrands; We buy Rolex, Breitling and other fine watches; We buy gold teeth. Cash-for-gold shops compete to attract customers. Young men hand out pamphlets between Commissioner and Jeppe streets. All guarantee best prices.

'We pay more': signs offering best prices for gold are everywhere. The proliferation of cash-for-gold shops in the CBD follows the increase in the gold price, and new shops compete to attract customers with flashy signs and pamphlets.

“Long time no see,” Paymaster’s owner Rashaad welcomes a costumer. “Don’t go sell anywhere else. You know this is your house.” He is worried about the increasing competition.

Rashaad, who did not want to give his surname, and his partner Yusuf opened their shop two years ago. Rashaad used to work in property and got into the gold market because “there is a lot of money in this business”. About eight new shops have opened recently within a 500m radius.

But Rashaad, known as boss – or patrão to the Mozambican customers, claims Paymaster pays the highest prices, and they do that by lowering the profits on sales.

A few blocks up on Jeppe Street the scenario is the same. Alan Smith, a gold trader who works in a pawn shop that buys jewellery and coins, says five new shops have opened in a two-block area recently. His co-worker Ges de Beer adds that Nigerians are opening similar stores in Hillbrow.

Smith says the financial crisis ought to be making people sell more gold because the price is going up. But his shop, which opened 10 years ago, has not really seen an increase in customers. “People are trying to find better prices all the time … competition is huge.”

Rush for a safe haven

There are many explanations for gold’s recent strong rally. Investors’ concern over the European debt crisis is one. A large growth in the demand for gold from consumers in China and India with their fast-growing economies is another reason.

Additionally, gold is considered to be a good investment in times of uncertainty because of its “safe-haven status”. With its relative stability, gold is an effective hedge against inflation and the depreciation of the major currencies.

“Poor economic conditions are good for gold, and good economic conditions are bad for gold,” says Tim Cohen, an experienced financial journalist. That, he says, is the short answer for the increase in the gold price in the past couple of years. The longer answer is historical.

Cohen says the period between 2005 and 2008 was a remarkable one in global economic history, with high growth rates and low inflation. This environment was boosted by the industrialisation of China and India and one of the consequences was a global supply of cheap money.

But when the crash came in 2008 banks found themselves short of cash, as did businesses in general. As a result, countries increased the amount of money in circulation, which led to inflation.

“In order to duck this crashing wave” many investors sought alternative sources of stable value, Cohen says. “Gold, which is rare and rust-proof, has for centuries been just that. But higher demand results in a higher price, and consequently the gold price has gone up strongly.” Rising physical demand and lower sales by national governments have also helped, he adds.

Midas touch

The proliferation of shops in the CBD should continue as the gold price is expected to rise even more in the next few years. Just like more than a century ago when single men would come to Johannesburg attracted by gold, more and more informal gold sellers have entered the trade, lured by the rising price.

“I like it because it’s a daily income,” says Sandi Mabaso, 27, who has been selling gold for three years. He exchanges goods such as bags, mirrors and kitchen appliances for gold, usually broken jewellery, which he then sells as scrap to cash-for-gold shops in town.

Many people obtain pieces of jewellery in a similar way: exchanging goods or services for them.

Felício Cowns from Maputo says he constantly travels to Swaziland to buy gold, mostly scraps. He also gets pieces of jewellery in exchange for work. Cowns’s family is still in Mozambique. The money he makes selling gold in Johannesburg is “enough to live on”, he says, holding R5 600 in cash after having made a sale.

Although trading gold is an honest job for many dealers, some people try to sell stolen pieces of jewellery or fake gold.

Rashaad is a God-fearing man – as the du’aa (prayer) for security on the wall signifies – and he says his shop works in the spirit of Lead SA; they do not get involved in “illegal stuff”, and he would like to think all his customers are working within the legal framework.

But, he says, some people come to the shop knowing they have fake gold. At first he used to get offended, but now he understands it is part of the business and he plays along. Experience has taught him a lot and sometimes “cheating is part of the game on the customer’s side”.

A man who introduces himself as Lucky Lit claims he bought a gold chain from “a guy that steals” in Carletonville, a gold-mining town in western Gauteng. Lit spent R80 on the jewellery but it turned out to be fool’s gold. His girlfriend could not stop laughing at him as they left a cash-for-gold shop in the CBD.

The city of gold

According to the Second-Hand Goods Act of 1955, which regulates the business of dealers in second-hand goods such as jewellery, all shops are required to have a certificate to trade. The licences are issued by the South African Police Service (SAPS).

The dealers must keep records of every transaction, including a full description of the goods and details of the sellers, including names and addresses. Smith says they apply every year for the certificate and register for VAT. Not only second-hand dealers but also refineries must apply for a gold trade licence.

The third link in the gold-trading chain, after small-time sellers and cash-for-gold shops, are the refineries, who smelt the gold and remove any impurities. They mainly supply the local jewellery market with material for manufacturing and the industry in general with precious metals.

Au Traders and Refiners is one of the refineries situated in town. They are in the SA Jewel Centre on Main Street, an up-market building that contrasts sharply with the modest cash-for-gold shops around Commissioner and Jeppe streets.

William Botes, general manager of Au Traders, has noticed an increase in the number of informal cash-for-gold shops in low-cost settlement areas, and wonders how they have obtained the required certificates. Au Traders, he stresses, only works with licensed dealers.

Au Traders has to submit a full list of every transaction conducted (all purchases, sales, imports and export) to the South African Diamond and Precious Metal Regulator (SADPMR). This must happen on a quarterly basis, and refineries have no choice but to comply.

Since the establishment of the SADPMR in 2008 there has been a decline in licensed refineries. Nevertheless there is still stiff competition among the small refineries, says Botes. They all fight for a small share of the market: “The biggest refinery in South Africa is Rand Refinery, and all the other refiners in the country put together would never come close to it.”

Additionally, small refineries are also feeling the crunch of the financial crisis. The local industry scenario has “deteriorated substantially” because of the crisis, which has led to a decrease in the demand for manufacturing materials, including precious metals. As a result domestic output by refineries has dropped.

Gold trade is less glamorous than it seems. Apart from the big dealers, most of the gold sellers in the CBD are poor. What often happens is that people have bought jewellery but can’t afford to repair it when it is broken, or just need the money to survive. Customers come to the shops wearing old clothes and slip slops. They usually carry big travel bags, in which they keep goods for exchange and their most precious possessions: small plastic bags with jewellery scraps.

Bread and butter: Most of the customers at Paymaster on Commissioner Street are poor. Young men exchange goods and services for pieces of jewellery. The gold is then sold as scrap to cash-for-gold shops in town.

“That is the bread for my children… The children have to go to school,” whines a man, begging for a better price. And Siphiwe, a young, poor man at Rashaad’s shop, says he came all the way from Soweto to change an old watch he found at home. He needs the money to open a drinks shop and is quite excited to be finally getting some cash.

But the dream does not last long. “They don’t want my watch, they don’t want my watch.” Siphiwe is heartbroken, nearly in tears. Rashaad has told him the gold is fake.

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About Natália Ribeiro

Natália is Brazilian and did her undergrad degree in international relations at the University of São Paulo. She was an exchange student in Spain and came to Johannesburg in 2011 to do her honours in journalism and media studies at Wits University. That is how she fell in love with South Africa. She has a passion for geopolitics, travel and documentaries, and hopes to work in broadcasting.

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