In Aurora, cash for gold is as good as gone

AURORA | In the fall of 2011, all that glittered was, in fact, gold.

Spurred by the economic implosion of 2008, raw gold was trading higher than at any other point in recorded history in September 2011, at nearly $1,900 an ounce. The price spike caused countless, quick-minded entrepreneurs to open businesses catered to people looking to make a quick buck — or thousand — and trade in their gold for cash on-site.

“When (gold) was $1,800 (per ounce), it was crazy,” said Andre Arguello, manager of Colfax Pawn at 9701 E. Colfax Ave.

But gold prices have dramatically cooled over the past four years, causing dozens of Aurora’s infant cash-for-gold shops to close their doors just months after opening.

At least 16 gold and precious metal shops that opened in Aurora between 2009 and the beginning of this year have since shuttered, according to anecdotal data collected by Trevor Vaughn, manager of the city’s tax and licensing division. The average lifespan of the 16 businesses was slightly less than two years, according to Vaughn’s analysis.

“The list is telling,” he said. “There are still a few buyers here and there, but a lot are pretty much gone. I think a big part of the decrease is that the price of gold has gone down.”

Gold values closed just below $1,100 per ounce on Nov. 10, which marks a drop of about 6 percent over last month and a decrease of nearly 23 percent from prices five years ago, according to the latest market indices.

The majority of the short-lived shops in Aurora operated on the cash-for-gold model, which centers on buyers immediately paying customers for their items, instead of offering redeemable loans like most pawn shops.

Limiting business solely to the immediate purchase of gold and select other metals like silver has been the Achilles heel of many cash-for-gold operations, as the practice becomes highly unsustainable when the economy improves, commodities inevitably plummet and fewer people are interested in selling sizable items, according to Scott Pasternack, owner of Pasternack’s Pawn on East Colfax Avenue.

“(The model) changed with the cash-for-gold shops because they were flat-out buying the pieces, but now they don’t have those big pieces coming in that allow them to pay rent, pay overhead and keep staff, so I think that’s why they’re closing,” Pasternack said.

He added that a shrinking number of sizable pieces of jewelry in the market has made for a dearth of highly profitable gold sales. And although a lack of substantial gold pieces can be fatal for a cash-for-gold outfit, pawnbrokers like Pasternack and Arguello are able to supplement dips in gold sales through hawking other items, like electronics and bikes.

“There are just fewer big pieces out there — they’ve all been melted down already,” Pasternack said. “In the 70s, 80s and 90s people were having those big medallions made, but then when we hit the recession, and for those seven or eight years everybody was selling their gold because it was the only thing that had value at that time. But the average customer who sells gold has already sold it.”

But gold prices have dramatically cooled over the past four years, causing dozens of Aurora’s infant cash-for-gold shops to close their doors just months after opening.

Where exactly some cash-for-gold shops get their product has been a separate point of contention in the industry across Colorado, and a lingering reputation for crime has not escaped outfits in Aurora.

Vaughn pointed to a grand jury indictment filed last year against Gold Exchange, a metals buyer formerly located at 3140 S. Parker Rd., charging two individuals associated with the firm with 32 counts of fraud, theft, racketeering and conspiracy, as an example of crooked operations in Aurora.

Vaughn said that the city switched to a more stringent license for precious metals dealers in the spring of 2013 after concerns were raised as to where some of their products were coming from.

Now, cash-for-gold and other precious metal buyers in the city must apply for a second-hand dealers license, must report any purchases to the city the same day they’re made, and must hold any purchased goods at the store for at least 30 days before moving them to another buyer or refinery. Prior to requiring the second-hand buyer license — which is different from a pawnbrokers license — buyers could turn and smelt items regardless of their origin within 24 hours, which was a problematic window for questionable transactions, according to Vaughn.

“There were concerns that if there was burglary or gold went missing and it went to one of these business, it would essentially go to be melted down the next day, and the items would be gone,” he said.

There are still about 10 cash-for-gold shops operating in Aurora and only two have closed this year, according to Vaughn.

But the future of the faddish business model appears bleak, according to Tracy Mott, chair of the economics department at the University of Denver.

“It doesn’t look to me as though the price of gold is going back up,” Mott said. “As it serves as an inflation hedge, there isn’t much inflation to hedge against. Some say now that the major sources of demand for gold is for personal use in places like China or India, and that doesn’t seem to me to be big enough to support any bounce in the gold price.”

Mike Robinson, manager of Precious Metal Refiners in Englewood, which works with pawn shops and gold buyers from across metro Denver, confirmed Mott’s prognosis.

“The trend seems to be pretty bearish these days,” Robinson said. “It’s not a really bright future for the metals.”