To the Melting Pot

They stream in by the thousands lugging shopping bags and suitcases filled with silver spoons, tea sets, candle sticks, gold rings and bracelets--anything that can be sold for its precious metal value and melted down. Almost everywhere, people rush to barter away their gold and silver bullion. In London uniformed guards admit long lines of sellers one or two at a time into the precincts of Johnson Matthey & Co., metal dealers, while tough-looking street traders sidle up to impatient standees. "Are you sellin', luv?" coos one, whipping out brass scales and rolls of pound notes. On Manhattan's West 47th Street signs blossom in jewelers' windows: "We pay the highest. Don't settle for less. Come on in."

Most of the pieces are ordinary silver, ranging from teaspoons to tea sets, but some are antiques worth far more than their weight in bullion. An exquisitely ornamented sterling cup made in 1835 changed hands in London for $272. Jeweler Abraham Lipchitz bought it on the street and quickly turned down an offer of $908 from a competitor. Said Lipchitz: "It's a crime. People are selling fine pieces like this to be melted down."

In the haste to cash in, some dealers are heaving precious pieces into the melting pot. Says John Culme, head of the silver department at Sotheby Belgravia: "People did the same thing during the Great Depression. Really wonderful Victorian centerpieces, tea sets and even 18th century dinner plates were melted down and lost."

Yet not all the fine pieces go to pot. "I absolutely refuse to melt down nice materials," says Jona than Hefferlin, the owner of Jonathons Coin in Los Angeles. From the daily glut, his wife picks out the valuable objects for resale. But at Manhattan's Empire Diamond & Gold Buying Service, where the queues form two hours before the store opens, almost everything goes to the smelter. Says Owner Jack Brod, who bought a Spanish-American War medal for its weight and paid only $75: "We might get more from a collector, but it's not worth looking for one or waiting. We'll melt it."

Many people are selling to avoid rising insurance costs and the risk of robbery, which is epidemic. Burglars increasingly are breaking into churches and synagogues to plunder sacred pieces of silver and gold.

Sellers have discovered that the price their silver fetches as scrap from retail dealers is only a fraction of the spot, or quoted, price for the metal. This spread between scrap and spot prices has been widening because chaotic markets make dealers reluctant to tie up too much cash in expensive inventory. A year ago, when silver was quoted at around $5 an oz., dealers paid customers $3 or $4 an oz., but when silver recently nudged $50, nervous dealers in the Los Angeles area were offering only $10 to $20 an oz. for scrap and sterling flatware.

Dealers pay cash, and then they deliver the scrap to the few smelting companies that have the special furnaces capable of reaching the extraordinarily high temperatures that burn away alloys. Before the dealers are paid, they must wait until the metal is melted down, assayed, and formed into bars by the refiners. In the mean time, dealers take bank loans to finance their inventories. But what used to be a wait of a few weeks for payment has been lengthening to four or five months as the smelters dig out from under growing backlogs. One Manhattan dealer bought so much silver and gold, and will now have to wait so long for payment, that he has been forced to negotiate an emergency line of credit to tide him over. The amount: $25 million.

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