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Recently, I received an interesting email from a fellow. He was dismayed to find that scrap iron prices in his area had gone down and he wondered what I thought about this. Here's my two cents on scrap metal, e-waste prices and bubbles in general.

After receiving the email, I called my local scrap yard and #2 iron has dropped from $160 to $140. This scrap metal yard is in the Sacramento Valley. I called others in the area and they were down also but not as much. Other prices for non-ferrous were still high. Then I called Reno scrap yards and #2 iron was still at $180 but non-ferrous down. I need to do more research but here's my gut feeling based on my experience over three decades and what I've heard and read.

The big picture is that China and India demand for raw materials has driven prices way up and I fear that we may be in a bubble right now. The world economy is terrible, as is the U.S., although if any country is going to survive it, it will most likely be China so there will still be a demand. But as the U.S. economy continues to tank and energy prices continue to rise, there will be less demand for Chinese products. Since the U.S. is major export destination for Chinese manufactured goods, Chinese production will slow and so will the demand for scrap from the U.S.

On the local and regional level here's my take on what goes on. Local yards pay me more if I have more, less if I have less. They're in the same, but larger boat when they go to sell. Smaller yards sell to larger yards because they don't have the quantity to sell to the ultimate buyer at the highest price. Their ability to get top dollar is reflected in what they will pay. Also, savvy local scrap yards will pay as little as possible while keeping an eye on local competition.

The high gold prices more likely reflect speculation and investment rather than true demand. The U.S. spawned financial crisis pushed many investors into Gold, increasing demand and pushing the price up. Manufacturers are always looking for ways to cut costs - one of these being to use less gold and other precious metals. You can see that just in the amount of gold used in the motherboards and CPUs of just a decade ago compared to now. Gold used in telecommunication was many times the amount used today. On the other hand, the demand for rare earth metals seems to be outstripping supply or at least there is a worry in the industry that it will do so in the near future. There are rare earth metals in our e-waste but no real market for it yet at our scale of business. I'd look for rare earth in e-waste to be more in demand in the future. For example, I recently spoke to a refiner who will soon be making an offer for the magnets in hard drives - one use of rare earth metals in computers.

E-waste is a money maker right now mainly because the value of gold has risen so much. One reason gold is high is because confidence in most all other forms of investment is low. Too many people saw their real estate, 401K and other investments collapse due mainly to the global casino economy that is based more on speculation and deriving products out of thin air than it is on real tangible goods. If the financial system turns around and other-than-gold investments seem secure and profitable, I expect the value of gold to decrease. If this happens, it will have a negative affect on the e-waste market.

A comparison - 30 years ago I was getting generally about 1/10th to 1/4th the price of today's scrap metal but still making it and doing really well. Costs for housing, fuel, etc. were less back then, but not that much less. In relation to the past today's prices are a total boom. In my mind it is as likely that scrap prices will increase as it is for them to decrease. Actually, if I really think about it, I expect the bubble to burst sometime in the future.

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Many seem to believe any bubble is the beginning of a new and long standing trend. The dot com and housing boom/busts hit many very hard. It was devastating because people bet on the boom being the new reality and, as we often do, started thinking magically. They were hurt big time when the bubble burst - as all bubbles do. Lesson learned is that there is no guarantee that things will stay like they are. It's magical thinking to assume that things will always go up. In fact, it is a fairly safe bet that if the value of something goes up extremely fast and it is surrounded by all sorts of hype like - "gotta get in before it goes even higher" - it's going to come down quite quickly as well.

I'm not sure if this is a scrap and precious metal bubble or not, but it's possible and it feels like it to me. In any case, I'm not betting on prices staying the same, going down or going up. I sell my scrap as soon as I have a good load because to me, waiting means not having the capital available to me to do other deals and make more money. In my mind, the possibility of receiving $30 or $40 less per ton that I'll get from selling my material now is more than made up for by having the cash from that sale to quickly use it to do the next deal. I have zero confidence that prices will increase in the short or long term.

One upside of prices sliding down, is that locals who may have made the trip to a scrap yard themselves won't feel it is worth their while anymore. Also, if the economy improves, more people will be working and less will be looking for ways to survive - scrapping being one avenue available to the unemployed and under-employed. This creates an opportunity for us to gather that stuff and take it in ourselves and sell for a profit. Less competition at the local level is better for those of us in it for the long haul. Another upside is that more material will be reused rather than scrapped. Right now I see way too much good useable items going to the scrap yard due to the relatively high prices.

It's all very volatile right now. Our entire system is totally out of whack. We won't have a stable economy that we can depend on until several things happen. The U.S. must re-industrialize; bring decent jobs back home and quite shipping jobs overseas. The financial markets need to be reigned in to prevent a repeat of the past so that we can look forward to a bubble-free future. We need to raise the minimum wage in this country to a living wage so that regular working folks can afford to purchase the things they help create, have decent housing, transportation, health care clothing, leisure, and food.

Click here to learn how you can make the money that you need and want in this home-based business.

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Michael Meuser bootstrapped his way into the salvage and recycling business in the early 1980s. He began with building deconstruction and scrap metals and then moved into electronics, computer and telecommunications scrap where he learned to recover gold and other precious metal.
Michael tells his story, provides resources and offers his advice at his website, RecyclingSecrets.com, and his blog, Recycling Secrets Blog. Recently Mike completed the eBook How to Make Money in the Home Based Salvage and Recycling Business. It is a chronicle of his experiences, successes and failures in the business. Also, you can follow Michael on Twitter.

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