Rising gold will affect prices, sales

Jewelers are bracing for higher gold jewelry wholesale costs next year, following the recent rise in the price of gold—costs they’ll have to pass on to customers.

Though analysts say rising retail prices have little effect on consumers buying upscale 18k jewelry and watches, some jewelers have told JCK there may be more buyer resistance at the lower end of the market. And while dollar volumes may increase, overall unit sales of gold jewelry might not. That, in turn, could mean greater reliance in 2005 on marketing and promotions by jewelers to entice the gold jewelry buyer.

 The price of gold on world markets topped $456 on Dec. 2, a 16-year high, and its sixth consecutive month of gain. Some analysts and traders expected to see it reach $460 by year’s end and even continue rising in 2005 to as much as $500 an ounce. In 2004’s final quarter, gold has gained more than 13% in value, driven primarily by a weak dollar (which makes gold cheaper for buyers in other currencies), though the Iraqi war, strong demand for gold in Asian markets (especially China), and worries about inflation (gold is a traditional hedge) are factors, too.

The weak dollar also pushed the euro/dollar rate to a new high of $1.33, meaning higher-priced European jewelry imports, too, in 2005. Jewelers can expect to see the effects of higher-priced gold, and the weak dollar, on wholesale jewelry prices as early as the 2005 spring shows in Europe and America.

“We’ll have a better idea than what this means [for business],” says Ed Bridge, president and chief executive officer of Ben Bridge Jewelers, with more than 70 stores in 11 states. But jewelers’ retail prices “ will definitely have to go up to cover the added cost.”

A very few have already begun adjusting their retail prices, say some newspaper reports, though most say their prices are fixed through the holidays and won’t change before early next year. What jewelry is affected and by how much depends on the category and item.

Dale Perelman, president of the Mid-Atlantic’s 51-store King’s Jewelry chain, for example, notes, “We want to protect the basics. We’ll keep margins low and maintain certain pieces to bring in traffic.” Most jewelers and analysts said the rise in gold, and retail price, should have little effect on sales of luxury products, and more effect on entry level gold items. Perelman, for example, is “optimistic this won’t affect demand for mid- and high-end jewelry. Customers of lower end gold items, though, may go to more silver and silver-and-gold.”

Some major national jewelers say that a gradually rising gold price actually helps jewelry sales. Indeed, said one, “I’d rather sell gold jewelry in a rising gold [price] market.”

At the World Gold Council, John Calnon, managing director of its U.S. office, agreed. “The news about the rise in gold price reinforces the fact that in addition to adornment, gold has real intrinsic value and that helps bring in sales,” he noted. Calnon told JCK there’s been no sign of consumer pullback” since the gold began rising in September.

Perelman agreed. “As the gold price has increased, our jewelry sales have increased,” he told JCK, “and that tells me what was a recession is now a slow down, and things will move up a bit.”

Gold’s rising price in the past couple years hasn’t deterred overall U.S. gold jewelry sales, which rose 2.3% in 2003 (topping $16.3 billion). In 2004, at press time, gold jewelry sales were up 2.7% over 2003 (more than $16.6 billion). The year 2004 is the 14th consecutive year of gold jewelry sales increases. What does spur sales, Calnon said, is “new and more innovative products, in terms of design and innovation. Our research shows today’s consumers would buy more gold jewelry if they find commercial product that’s relevant to them.” To help promote that, and gold jewelry sales, the WGC planned to its second annual “Gold Expressions” marketing program on Dec. 6.

Gold has had a roller coaster ride in the past two decades. From a record high $800 an ounce in 1980, it slipped to under $300 during that decade, then jumped to $400 in 1990 when Iraq invaded Kuwait. It tumbled during the 1990s’ stock market boom to a low of about $250 in mid-1999, and then started creeping up again. At the start of 2002, in the wake of Sept. 11, the price was $278 an ounce. A year later, in early 2003, as international tensions worsened and major economies sputtered, investors pushed gold to $381 and it’s kept climbing, spurred by the weakening dollar, the falling stock market and weak domestic and global economies.