How Rocketing Gold Prices Will Hit Holiday Shopping
If jewelry is on your holiday shopping list, consider this: Rising gold prices will soon make rings, bracelets, necklaces and earrings much more expensive.
December gold futures prices hit a record high of $1,118.60 an ounce on the Comex division of the New York Mercantile Exchange on Wednesday. So far this month, the price of December gold has risen by more than 7%. And it’s up about 26% for the year.
The sharp rise in gold prices is of interest to investors because it holds sway with the stock and currency markets, but shoppers are also affected. The changing price of an ounce of gold can have a real impact on what you pay for certain pieces of jewelry.
That impact isn’t immediate. It takes roughly six to eight months for the price of gold to alter the price at which gold jewelry is sold to consumers, says Jeff Green, the president of Mill Valley, Calif.-based Jeff Green Partners, a retail consulting firm, which tracks retail jewelry trends and prices. Retailers purchased the jewelry they’re now selling roughly six to eight months ago, and consumers are getting lower prices for their purchases now than they will in 2010, when the current price of gold will be reflected in the jewelry market.
Because the price of gold has been rising for more than a year, some retail prices are already higher. “There has been a trend toward rising prices for jewelry because of the run-up in raw material costs,” says Dorothy Lakner, an analyst who covers Tiffany (TIF: 42.72, -0.31, -0.72%) at Caris & Company, a full-service investment bank. “Tiffany has been selectively raising prices over the last couple of years to help compensate for the increases in precious metals costs.”
The retail cost of jewelry varies by the quality of the item and the company that sells it, but up to 80% of that cost can be determined by the cost of raw materials, including gold, Green says.
During the past year, most jewelry retailers have posted lackluster earnings because of low consumer demand. Tiffany posted net sales of $612.5 million in the second quarter (the most recent available), down 16% from the year-ago period. Zales (ZLC: 4.86, -0.09, -1.81%) reported a net loss of $189.5 million for its fiscal year ending July 31, compared with a net loss of $6.5 million in 2008. Comparable-store sales declined 16.6% for fiscal 2009, down from a 0.7% decline in 2008.
For consumers, these numbers translate to near-term buying opportunities. Shoppers who are considering buying gold jewelry will get a better price between now and the end of the year than they might in 2010. A decline in demand and persisting inventory have prompted some retailers to start rolling out their holiday sales early. Zales has marked down its gold bracelets by up to 55%, and the store is offering 15% discounts on certain online purchases.
Next year, retail prices for gold jewelry will start to rise in March, as current gold prices work their way through the market and the economy shows more signs of improvement, bolstering consumer demand.
The broader jewelry market is also affected. Consumers who want to shop for silver or platinum should consider buying now because those prices rise as gold goes up.
But the real bargains may be 12 months away, as the market continues to recover. So consumers who can hold off on jewelry purchases should wait until this time next year. “Gold is overpriced at the moment,” Green says, “but investors might pull back as the stock market rises.”