The Scrap Trade

The gold market's supply side is usually discussed as though it consisted of mines. It does not. In most years, somewhere between a quarter and a third of the metal reaching the market has been gold before — jewellery bought in another decade, industrial residues, coins, dental work — recovered, refined and returned to circulation. It is the only large source of supply that can respond to a price move within weeks rather than within a decade of permitting and construction.

That responsiveness is the single most important fact about the scrap trade. A mine's output is set by a plan drawn up years earlier. Recycled supply is set by how many people in Istanbul, Mumbai, Milan and Manchester decide this month that the price is high enough to open a drawer.

The chain, counter to bar

Most sellers see only the first link. Behind it is a consolidation chain that exists because refining has a minimum efficient scale that a shopfront cannot reach.

• The counter: a jeweller, pawnbroker or dedicated gold buyer testing and weighing small lots, paying cash, holding inventory for days.
• The consolidator: buying accumulated lots from many counters, doing a more careful assay, sorting by karat and by whether the item is worth more intact than melted.
• The refiner: melting the lot, taking a representative sample, running a proper assay and settling on assayed content rather than estimate — charging a refining fee and returning refined metal or its cash equivalent.
• The market: refined bars or grain re-entering fabrication or investment demand, with no trace of what they used to be.

Each link takes a margin, and each margin is defensible on its own terms — the counter carries fraud risk and holding cost, the consolidator carries transport and insurance, the refiner carries process losses. Stacked, they explain most of the gap between spot and what a seller is offered.

How the metal is tested

Three methods dominate at the buying counter, and their limitations are the reason the chain has as many links as it does.

Touchstone and acid

The oldest method still in daily use. The item is rubbed on a fine-grained stone to leave a streak, and graded acids are applied to the streak: an acid formulated for 14k will dissolve a 9k streak and leave an 18k one intact. It is cheap, fast, destructive only to a microscopic smear, and reads only the surface — which is precisely how plated items pass it.

X-ray fluorescence

A handheld XRF unit excites the surface with X-rays and reads the characteristic emission of each element present, returning a full alloy composition in seconds without marking the piece. It has become standard at any serious buying operation. Its weakness is the same as the touchstone's: penetration is measured in microns, so a sufficiently thick gold plate over tungsten or brass will read as solid gold.

Fire assay

The reference method, unchanged in principle for centuries and still the arbiter in any dispute. A sample is melted with lead and a flux; the lead collects the precious metals and is then oxidised away in a porous cupel, leaving a bead that is weighed, parted in acid and weighed again. It is destructive, slow and accurate to a few parts in ten thousand. Refiners settle on it. Counters cannot.

Where the value can hide

The buying chain is optimised for melt value, and it is systematically bad at recognising anything else. A signed piece from a named maker, a period setting, a hallmark from a defunct assay office, a stone worth more than the metal holding it — all of these are worth more intact than scrapped, and none of them survive a transaction priced purely on grams.

This is the most consequential asymmetry in the trade, and it does not require anyone to behave dishonestly. A counter buying on weight will offer weight. The seller who has not had a second opinion has no way of knowing whether the object in front of them belongs in the melt or in an auction catalogue.

The refining step

Once a lot reaches a refiner the metallurgy is straightforward and very old. The Miller process bubbles chlorine gas through the molten alloy; base metals and silver form chlorides that separate as slag or volatilise, leaving gold at around 99.5% purity in a few hours. Where higher purity is required, Wohlwill electrolysis follows: the Miller-grade gold is cast as an anode and redeposited on a cathode from a chloroauric acid electrolyte, reaching 99.99% or better.

What emerges has no memory. A bar refined from a tonne of broken chain is chemically and legally identical to one refined from mine concentrate. Every claim made about 'recycled gold' in a marketing context is therefore a claim about paperwork — the documented chain of custody proving where the input came from — and not about any property that could be measured in the metal itself.

Selling well

The practical advice that follows from all of the above is short. Know the contained value before you arrive. Get more than one offer, including at least one from a specialist refiner rather than only from a high-street counter. Have anything with a maker's mark, an unusual hallmark or a significant stone looked at separately before it is weighed as scrap. Watch the testing and watch the scale. And treat the percentage of spot you are offered, rather than the headline figure on the window, as the only number that describes the deal.