Recycled gold is an important source of gold supply.1 In 2018, the volume of recycled gold reached 1,168t, accounting for over 25% of total supply globally. Recycled gold is also an important source of supply in China, amounting to 146t, or 20% of domestic supply in 2018. Recently, China’s recycled gold market has experienced some exciting developments which could improve the efficiency and transparency of the industry.
Traditional methods of retail gold recycling
Individuals usually go to banks, pawn shops (large or small) and jewellers to sell their gold products in China. Gold items sold to these channels are then passed to refineries approved by the Shanghai Gold Exchange for further processing.
Each of these channels has its advantages and disadvantages. For instance, pawn shops accept almost all gold items, while banks have stricter requirements on product types (gold investment products only), brands, certificates and physical condition. Also, not all branches of banks and jewellers’ offer buy-back services. In most cases, jewellery retailers encourage trade-ins instead of buy-backs.
Costs across the different channels can vary significantly. According to our contacts in the industry, banks usually charge around 4% of the product value when buying back gold bars, while pawn shops take at least 10%. Items of gold jewellery bought by pawn shops are often discounted at an even higher level.
The disadvantages of recycling gold through these channels – such as high cost and inconvenience –have made it difficult for physical gold investors to liquidate. And this difficulty is, in itself, a potential barrier to physical gold demand among investors for whom a quick and easy sale is a top priority.
Online gold recycling
But this barrier is being challenged. The internet has been playing an increasing role in China’s gold recycling market since the launch of the “Internet plus” initiative in 2015.2 In 2018, online platforms started to provide low-cost, transparent and convenient gold buy-back services with virtually no restrictions on forms of gold products. The process of selling gold back on-line is much simpler than through the traditional channels: