Monday, September 21, 2009

Is Gold Pawning ALL BAD ?

There was an article that says gold pawning is strategically disadvantaged, usually by a 0.X% This implies that you will most probably lose out when you pawn more often (1) longer of time (2). So does that mean gold pawning is an all bad thing ?

The answer is NO!

There are 2 words in relation, Gold and Pawn. Gold is an investable commodity. As a matter of fact, gold could be viewed as the god of all commodities. There is an old saying "When you don't know what to do with your money, buy gold!". Gold is a well known hedge against inflation. So overall if there is Gold involved, it cann't be too bad.

Pawn on the other hand is a not-so-good-thing in general. Basicaly you exchange your valuable items for cash. Your item will be safe kept for a certain period. You can buy back your item before an expiration date. Usually total buying back is lower than initial surrender price so that the pawn shop can earn a profit. On cases where the opposite may happens, the pawn shop enforces a safe keeping fee to minimize loses.

Although pawning is not a good thing, as in you have cash flow problem and you pay extra fee to safe keep your own stuff, but if there is anything a person should pawn it is Gold and Silver.

So gold pawning is not bad at all.

Rob has Rich Dad in his life, as a matter of fact I went through a similar life path as his, but I have Rich Friend instead of Rich Dad. From where I grew up, gold pawning is a way of life. My Rich Friend runs a gold pawn shop. Despite the fact pawning is disadvantaged both strategically and psychologically but over the years we cann't ignore another fact that some people who pawn their golds are still surviving and some doing pretty well indeed.

Lets review some facts again, a 0.X% disadvantaged investment is still better than gambling, borrow money from illegal sources ( Ah Long ), over draft, credit card interests etc.

Some of the key reasons why quite a number of people can make it through their whole lives simply by pawning golds are;

1. Gold's trend growth is REALLY more than inflation rate and
2. Gold provides an excellent cash flow facility today.

If you are earning an interest that is higher than inflation rate, then minus it with a 0.X% disadvantage by adopting some not-so-good strategy ( pawning ), the worst it gets is you are still hurt a bit by the inflation. Relatively, most people do not save at all! Hence,

Earning Gold trend - pawning disadvantage rate > Not doing anything at all

After all, that is why there is the saying when you don't know what to do, just buy gold ! But there is NEVER a saying "Pawn your gold to get Rich".

The delusion of pawning gold strategy is because it does actually increase cash flow. And sometimes some people mistakenly take extra cash flow as wealth. Pawning gold is also a very valid leverage technique. Hence combining its leveraging 'fun' and extra 'cash flow', people easily mistaken it as a way of 'wealth path'.
Gold is an excellent tool to hedge againsts inflation,
Gold can provide you great cash flow especially at bad times,
but pawning will lower all the advantages you get above although in small scale only.

Pawning your gold is not an all bad thing but its NEVER going to be the best thing you can do in your personal finance.


Anonymous said...

I dont quite get it. I heard of Gold as investment, but not pawn. I thou when one go to pawn simply means he is shortage of cash? U mean there are ppl doing it as an investment? How exactly can one earn by doing so?

Pawn a piece of gold in x value, get it back when gold price drop or rise? also not make sense at all?

I thou when one pawn, prices is fixed before the deal?

Michael Tsen said...

you have the fundamentals right. However, Gold Pawn is a slightly different scenario where the pawn price follows market price, not any gold ornaments but pure gold only.

And yes, there are REALLY people who live on gold pawn itself. Gold pawning to help on cash flow as you mention is one common way. There are also people who actually earn money by teaching people how to 'invest' by pawning gold. These people are so real that they complained about my previous article affecting their 'sales' ... unfortunately previous article is mathematically correct so I can't simply take off that article and instead write this one to site on their stories ... there is a PRO and CON in every method and perhaps this is one good example.