Gold has soared in recent times and has reached high proportions in the past year. It rose to $1000 an ounce for the very first time in futures trading and is a wonderful thing to happen to investors, but the worst thing for consumers and jewelers. The increasing gold prices may just force the jewelry industry to re-invent itself. Analysts say that the $65 billion jewelry industry in the US is at stake.
Increase in gold prices proves to be a deterrent to consumers and a major concern for jewelry shop owners. As a jeweler laments, a gold chain that was priced at $189 will now cost $346 and there is nothing they can do. Even brands like Rolex increase their prices and this increase has to be passed on to the customers. Consumers are reluctant to buy as much gold as they did earlier because of the price increase.
The price of gold has risen by about 32 percent in 2007 and jumped almost 20 percent since the beginning of this year. This is the result of a weak dollar and high crude oil prices. The dollar fell very low against the yen for the first time in 12 years and also hit a low against the euro.
Analysts say that the low interest rates do not help the dollar and that gold may go even higher, if the Federal Reserve cuts the interest rates again as is expected.
To make it easier to understand the above jargon, gold price rises when dollar falls. Soaring oil prices cause inflation and gold rises at least 90% of the time when oil price increases. Gold prices always correlate closely with oil prices and go in the opposite direction of the dollar.
Where jewelers are concerned, the amount of increase and the time of increase in gold is based on the size of the store selling gold. Top jewelry stores like Tiffany and others sell jewelry to big retailers, and order jewelry for a whole year in advance and have plenty of stock. Since their stock is bought much before the increase in rates, they will not need to raise prices immediately. Some of these large stores even elect to absorb part of the increased cost, just to remain competitive in the current market.
However, the smaller stores keep ordering jewelry as and when they need to stock their shelves and they will have to increase prices when they reorder, as they are paying higher. This affects their business.
Analysts give reasons for consumers disinterest in buying gold at increased prices. For many years, whenever gold prices increased, jewelers have designed jewelry ensuring they maintain “perfect” gold prices that attracted customers. They managed this by making jewelry in lower carat gold and lighter styles in terms of weight and even the quality of the diamonds and precious stones used in the jewelry was lowered. This went on well for some time and customers were happy getting beautiful jewelry at decent rates.
As is wont to happen, after a while, customers had bad experiences in terms of broken jewelry, chipped stones and stones falling out of the grooves. This in fact prompted customers to stay away from buying gold as gifts and steered them in the direction of other metals such as silver and even electronics. This shows that there was a decline in gold buying even before the price increase but with the increase in prices, this decline got worse. According to industry experts, this is mostly the making of the jewelry industry which failed to provide quality that the customers look for.
Jewelers are thinking of alternative solutions, like increasing the quality of the jewelry along with increasing the price. It remains to be seen whether the jewelry industry will actually go ahead with something like this. If this has to be implemented, it has to be done by the top stores first in order to set a trend and other smaller jewelers will follow.
Of course, at the other end of the spectrum, there is this fond hope among many retail jewelers that gold prices could plummet. According to analysts, the economic conditions of the current day make it highly unlikely that this will happen in the near future.
On a brighter note, women have loved gold for centuries, and that is not going to change whatever the price of gold.
View Comments
Not only is the price of gold increasing, but all of the other precious metals as well. All types of jewelry are having to come up with new ideas to get around this.
The value of gold will never be declined. Because of it demands