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Gold Runs Out in Lisbon as Price Drop Compounds Money Misery

Paulo Oliveira and his wife sold their wedding rings to pay the rent after he lost his job as a builder last month. They were the couple’s last pieces of jewelry.

“We have no more gold to save us from being kicked out this month,” the 46-year-old said as he stood in the area of downtown Lisbon popular with cash-for-gold stores. “Everyone I know is struggling, even the gold stores are empty because nobody has any more gold left to sell.”

Oliveira encapsulates a growing trend in debt crisis- stricken Europe as household gold supplies dry up after record prices and a deepening recession prompted a proliferation of places to exchange the metal for money.

In Portugal, the historical home of some of Europe’s biggest gold reserves, the number of jewelry stores, which include cash-for-gold shops, increased 29 percent in 2011 from a year earlier, a study commissioned by parliament found. In the first quarter, an average of two new stores opened every day, the report said. Now some of them are closing.

“Business has gone from great to terrible in a matter of months,” Luis Almeida, whose family has owned a gold store near Lisbon’s Rossio Square for more than 40 years, said in an interview. “The sad truth is that most of my clients have already sold all of their gold rings.”

Photographer: Mario Proenca/Bloomberg

The Portuguese parliament building is reflected on a street sign in Lisbon, Portugal. Close

The Portuguese parliament building is reflected on a street sign in Lisbon, Portugal.

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Photographer: Mario Proenca/Bloomberg

The Portuguese parliament building is reflected on a street sign in Lisbon, Portugal.

Market Slump

Recycled gold supplies, which are derived in part from melted jewelry, fell 7.7 percent to 363.7 tons in the three months through June from the previous quarter, according to the World Gold Council. Global demand for gold dropped 7.1 percent in the second quarter to 990 metric tons from a year earlier, the London-based industry group said today in a report.

Gold for immediate delivery jumped 10 percent in London in 2011, reaching a record of $1,921.15 an ounce on Sept. 6. Since then, the price has fallen 16 percent and traded at $1,616.04 at 5:06 p.m. in London.

The market swing coincided with Portugal raising taxes and cutting spending to meet terms of the 78 billion-euro ($96.2 billion) 2011 bailout package from the International Monetary Fund and its European partners. Portugal was the third country to seek aid, following Greece and Ireland in 2010.

“That’s when I started selling all the gold I had,” said Oliveira, who made 800 euros a month working as a bricklayer for construction companies such as Mota-Engil SGPS SA (EGL) and Soares da Costa SGPS SA before being laid off in July.

Gold Exports

Portugal’s gold exports increased by more than five times to 519.4 million euros last year from 102.1 million euros in 2009, according to data published on the Lisbon-based National Statistics Institute’s website.

Photographer: Mario Proenca/Bloomberg

A tram approaches waiting customers at a tramstop in Lisbon, Portugal. Close

A tram approaches waiting customers at a tramstop in Lisbon, Portugal.

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Photographer: Mario Proenca/Bloomberg

A tram approaches waiting customers at a tramstop in Lisbon, Portugal.

Oliveira said he now makes as little as 15 euros a day polishing shoes on a wooden stool in Lisbon’s central Barros Queiroz street, where gold traders complain competition is eating profit.

“It’s like seven dogs for one bone,” said Alcina Bernardo, who owns a gold shop 500 meters away in the Rua do Ouro street, once a center for goldsmiths working with metal brought back from Brazil in the 18th and 19th centuries.

As a country, Portugal traditionally has guarded that gold. The central bank holds more gold relative to the size of the country’s economy than any euro country, mostly accumulated during former dictator Antonio de Oliveira Salazar’s 36 years in power, based on data compiled by the World Gold Council.

The law prevents proceeds from selling any gold reserves from going toward the government’s budget.

Already Melted

While central banks bought 157.5 tons in the second quarter, compared with 66.2 tons a year earlier, jewelry use slipped 14 percent to 418.3 tons, the council said. Jewelry demand from India, 2011’s biggest buyer, plunged 30 percent to 124.8 tons, accounting for 30 percent of the global total.

“The loose scrap in the market has already been melted,” said Nikos Kavalis, an analyst at the Royal Bank of Scotland Group Plc in London who forecasts gold prices will fall to $1,250 an ounce by 2015.“People are also less willing to sell their jewelry amid lower gold prices.”

With the Portuguese unemployment rate at a euro-era record of 15 percent in the second quarter, Oliveira is now wondering who will help bail him out now that his job and gold are gone.

The government forecasts unemployment will increase to 15.5 percent for all of 2012 and to 15.9 percent next year. An average of 86 people a day sought help for indebtedness during the first half of the year, the Portuguese Association for Consumer Protection said in a report published in July.

“It’s okay for the gold shops around me to go broke, they’ve already made their profit,” Oliveira said. “What I would like to know is who will help me and my wife when we get evicted?”

To contact the reporter on this story: Henrique Almeida in Lisbon at halmeida5@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net

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