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Pawnbrokers lose shine as gold market weakens

Dan Kitwood | Getty Images

Tumbling gold prices have hit one of Britain's biggest pawnbrokers, Albemarle & Bond, with the company forced to issue a profit warning and launch an emergency sale of shares.

Ongoing weakness in the price of gold has caused "significant uncertainty" over Albemarle & Bond's profitability, the pawnbroker said on Monday, ahead of the release of its full-year results later this week.

Albemarle & Bond hailed "the age of the pawnbroker" less than two years ago, as it announced plans to create 300 jobs and open 25 new stores in 2012. The pawnbroker thrived as recession-hit Britons sold valuable items — including gold — for cash.

(Read more: 'Posh' pawnbrokers boom as middle classes cash in assets)

However, Albemarle & Bond's core businesses of pawnbroking and gold buying have suffered as bullion prices have fallen sharply over the last 11 months, due to fears of an early end to the U.S. Federal Reserve's commodity-friendly monetary stimulus program. The company now faces crippling debts, and is in discussions with lenders over the conditions applying to its debt repayments.

(Read more: US budget uncertainty may limit gold's decline)

"Whilst the company's current level of net debt is well within these facilities at circa £51 million ($82 million), the earnings-based covenants are at high risk of being breached at the testing dates due in the current financial year," Albemarle & Bond said. It added that it was in discussions with its largest shareholder, EZCORP, to underwrite a £35 million rights issue to "recapitalize the balance sheet and resolve potential covenant breaches".

Other British pawnbrokers have also felt the effects of the weakening gold market. Last month, rival H&T saw a £2 million drop in profits to £5.5 million for its gold business, for the first six months of this year.

One analyst told CNBC that gold prices would not see a significant boost over the next two years and pawnbrokers were unlikely to see a change in fortune.

We don't see gold prices soaring again unless there is something big in the Middle East. If the U.S. government shuts down and they can't resolve the debt ceiling, that might provide stimulus for gold prices to go higher," Tom Pugh, commodities economist at Capital Economics said.

"However, it tends to take a high gold price to make it good for people to invest. In terms of pawnbrokers profiting from gold, you will have to see the price go to the $1,800 (per ounce) level, which we really don't see."

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