Industry wrestles with rocketing gold prices

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Industry rattled as gold price approaches US$2,000.

The total value of UK gold jewellery sales rose 5% to US$211 million (£147m) in the second quarter of 2011, despite volume falling 16% to 4.4 tonnes over the same quarter a year ago.

As the industry convenes for International Jewellery London, statistics from the World Gold Council illustrate the profound changes taking place for UK jewellers as they grapple with gold prices fast approaching US$2,000 per ounce.

Jewellers are watching commodity prices more closely than Wall Street traders, with many profiting handsomely from the inflation. “It terrifies them, and it also makes them very happy because they are going to buy gold across the counter and make a bit of money from that. There is also normally a lot of rainy day jewellery sitting in the safe, which they never anticipated getting US$2,000 per ounce for,” said Willie Hamilton, chief executive of The Company of Master Jewellers, a buying group that represents more than 200 independent UK jewellers.

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Insurance broker TH March, which offers specialist policies for jewellers, said its clients are witnessing a dramatic decline in gold sales. “Most people that we speak to say that, in the past six to 12 months, they have moved away especially yellow gold, because it isn’t selling. White gold is popular, platinum is still popular, and more people are pushing palladium,” said Neil McFarlane, sales director for the company.

At the end of a summer that saw dozens of jewellers looted in riots, McFarlane said that the value of gold being held in stock needs to be constantly monitored. “The majority of our policies are written on a replacement cost price basis, which means what it costs to replace stock at the time of the loss, not necessarily the price that they paid for it,” he explained.

Designers continue to change the format of their collections in an effort to keep gold jewellery affordable. WB Creative Jewellery Group, which supplies bespoke and finished jewellery from its Birmingham HQ, is planning for a tough fourth quarter. “I doubt whether the product we sell will be the same weight, carat or grade of stone as we sold last year, but I think there will be a Christmas because there has to be. I do not expect a bumper year,” suggests Andrew Morton, the company’s group managing director.

While Morton would like to see gold prices end their bull run, his greatest fear is a sharp fall in price. “What we need the gold price to do is to fall, but to fall steadily. If the gold price falls off the edge of a cliff, as it did with the price of platinum in 2008, people could lose a lot of money,” he cautioned.

That scenario looks unlikely in a global market where demand continues to soar, despite the sharp inflation. Total worldwide gold sales, including investment and industrial gold, soared by 50 tonnes in the second quarter, compared to a year ago. The price paid for that gold in Q2 US$36 billion, up a staggering 35% over Q2 2011.

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