Got Gold? Why TV Ad Men Want Yours

By Beacon Staff

The TV ad may be memorable for its absurdity. A cash-strapped wife looks on as her husband, dripping gold jewelry, suddenly drops dead at the kitchen table. Next, a slumbering granny yawns, exposing a row of glinting golden teeth – and a relative arrives with pliers.

The scenarios are morbid, but the ad’s message is clear: Misfortune has its opportunity. Make that moneymaking opportunity.

As the recession deepens and a strapped middle class looks for ways to restore a little girth to its pocketbooks, ads for a slew of firms offering top dollar for unused jewelry are blanketing the airwaves. They are a visible sign of a confluence of trends that is making the precious metal brokerage industry, increasingly, a profitable one.

The big reason? As investors look for security in troubled financial times, gold prices over the past year have been hovering near highs last seen two decades ago, closing Feb. 2 at $903 an ounce.

At the same time, costs for television ad time are dropping as more-traditional advertisers cut spending, creating an opening for aggressive advertising by gold-buying outfits. Industry leader Cash4Gold even broke into the elite Super Bowl advertising showcase, shelling out $3 million for a spot. Its ad on Sunday featured MC Hammer and Ed McMahon, both known for their financial woes, kissing good-bye their various metallic treasures, ranging from golden golf clubs to a gold toilet.

These companies operate as online pawnbrokers, encouraging people to mail in their gold in exchange for a check. Most companies promise to send a check within 24 hours and allow about 10 days for a consumer to change his or her mind.

“The entire economy is crumbling, and when that happens people below the line need cash,” says Stephen Schneider, head of marketing for Cash For Gold USA, which made the tongue-in-cheek ad with the gold-toothed grandma. The company has grown “a thousand percent” over last year, he says.

Other companies, too, are reporting golden balance sheets. Chad Sharpe, president of Broken Gold, says his firm is growing by 50 percent a year, and he expects a bigger boost after its television ad campaign kicks off next month. “We’re planning on 2009 being our best year,” Mr. Sharpe says.

Aiding Sharpe are television advertising prices that have plummeted in recent months.

“This couldn’t be happening unless there were wide amounts of time that the general advertisers, the big corporations, pulled out of, leaving gaping holes during programming that have to be filled by the TV stations,” says Mark Ratner, a senior vice president at Hawthorne Direct, a media buying firm for direct-response ads.

The TV ads are likely to be on the air for some time to come. Though gold prices are notoriously volatile, they are likely to stay high for the foreseeable future as the global economy remains in flux, says Jon Nadler, senior analyst at Kitco Bullion Dealers in Montreal, a leading investment firm.

“Investors look at gold as a safety valve. At a time when trust in banks is swooning every day, gold has no credit risk involved,” he says.

Just because refineries with pure gold can expect healthy prices from banks and commodities brokers doesn’t mean consumers selling scrap gold to intermediaries reap all of the benefits, says Carlos Sanchez, a precious-metals analyst at CPM Group, a commodities research firm in New York.

“Many of those companies are not paying full price for the jewelry,” he says. “It might seem like that to the customer who bought gold jewelry when gold was around $300 an ounce, but now that gold is around $900 an ounce they’re really not getting that much of a bargain.”

Exactly how much each company pays, and how scrupulous each is in assessing the value of customers’ jewelry, is a matter of intense debate within the industry. At least one television news investigation showed wildly divergent payoffs from different firms for identical pieces of jewelry, and the Better Business Bureau has recorded a number of complaints against a few prominent firms.

Consequently, some firms are moving to build consumer confidence in their services, looking to gain the competitive edge. Lippincott, parent company of major industry player GoldKit, launched a new brand in September called Red Swan, targeted at middle-class women. Though GoldKit and Red Swan use the same in-house price evaluators, Red Swan has burst onto the media scene with segments on local television stations and appearances on national programs like “The Rachael Ray Show.” It sponsors female-friendly “gold parties” and allows women to earn extra cash for referring friends.

Michael Gusky, CEO of GoldFellow and a longtime industry veteran, advises people wanting to sell their gold to investigate the legitimacy of the purchaser. That’s especially true if the items are valuable – as seems to be increasingly the case. In the past 90 days GoldFellow received about 20 Rolex watches, says Mr. Gusky.

“In the last two months we’ve seen an extraordinary amount of jewelry that typically is owned by the upper middle class,” he says. “We’re seeing a completely different kind of customer.”

Still, people should not have unrealistic expectations about the value of their jewelry. The average package sent to Gusky’s firm contains about 1 ounce of fine gold.

“After you melt Aunt Betsy’s ring,” he says, “that’s about all you’re going to get.”