As the price of gold climbs, I wondered how this might impact jewelers such as Tiffany & Co. (NYSE: TIF), Signet Group plc (ADR) (NYSE: SIG), Blue Nile, Inc. (NASDAQ: NILE) and even Berkshire Hathaway (NYSE: BRK.A), which has large holdings in the industry. To explore this question, I talked with Amanda Gizi, Spokesperson for the Jewelry Information Center, which represents the fine jewelry and watch industries.How will the increase in gold prices impact jewelers this Christmas season?
According to Gizi, most of the stock for the upcoming season has already been purchased, and while the price of gold might fluctuate, jewelers are not prone to adjust prices with every blip of the market.
How does this market differ from 1980, when jewelry sales suffered greatly under $900 gold?
Gizi pointed out that, given inflation, the current $700+ gold is not nearly as expensive as $900 gold was in 1980 dollars. Using the Bureau of Labor Statistic's inflation calculator, I found that gold would have to reach $2,270.94 in today's market to equal the value at its 1980 peak.
How would you assess the conjecture of CLSA Chief Strategist Christopher Wood, as reported by BloggingStock's Weld Royal, that gold could reach $3,400 in the next three years?
Gizi considered this unrealistic, given the market's history.
She went on to tell me that despite its sharp price increase, platinum continues to be a popular jewelry choice, especially in bridal selections, and other metals such as palladium and tungsten carbide are increasingly found in men's jewelry.
In gemstones, she told me fancies (gems in colors other than their common form, such as pink sapphires, blue diamonds, etc.) are very hot on the market now.
Her take on the industry? $700 gold isn't going to scare the merchants, and they don't expect it to scare away the customers, either.
My take? The cost of the gold in a piece of fine jewelry, at best, represents no more than 5-10% of the sale price, so the price of gold will have to increase a great deal before it severely impacts the jewelry trade. Don't sell your Tiffany and Co. out of gold fear.
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Reader Comments (Page 1 of 1)
9-22-2007 @ 6:25PM
Carl Moore said...
I own a small independent jewelry store and have seen resistance in purchases of gold jewelry ever since $550 gold. Granted, we are in a rural area fighting a five year drought and increased competition from big box stores, but the fact of the matter here is sales are down.
Add to that, our area has one of the highest foreclosure rates in the country. Higher gold prices will definitely affect our Christmas sales.
9-23-2007 @ 4:21PM
Tyra said...
2. I recently went into a jewelry store on 9/21/2007 to purchase a set of 7 stackable 18 Karat Gold Bangle Bracelets that typically retailed for $800 a year ago. I wanted to purchase the bracelets and asked the jeweler what the price was since I would need to have them made for a 7.5 inch wrist. She told me $1200-$1300, and I was floored. I asked why the price had increased so much, and she told me that the cost of gold increased, so the price of the bracelets had to also increase. I politely told her that it was out of my price range, and she told me to come back when the price of gold goes down. Are independent jewelers trying to take advantage of customers with the price of gold going up? Will the price of gold ever go down??????