Gold has soared recently to levels not seen since the 1980s. From $430 per ounce in April 2005 to approx. $550 an ounce towards 2005 years’ end, to the much anticipated $600 per ounce in April 2006.
Many analysts expect a rise in raw gold to $800 per ounce within the next 1-2 years, and some have even ventured as far as predicting gold to reach $1,000 or more per ounce within the next 2-3 years.
Both wholesale and retail jewelry prices are on the rise, as gold jewelry retailers update their prices to reflect this great increase. The question is, how soon and how hard will higher gold prices hit the jewelry consumer?
This will greatly depend on the type of jewelry store and how quickly they have systems in place to change their jewelry prices. A change in gold from $550 an ounce to $600 will not dramatically change things in the retail world.
But for a discount jeweler who charges by the gram, a different of $50 per ounce can make a decent difference. This will translate to almost $1.50 per gram for 14k gold. A gold chain weighing 20.0 grams for example will now cost the retailer an additional $30.00 to purchase. And this is assuming that the same jeweler does not mark-up this new increase to say, $45 instead of $30! Retailers who base their prices on keystone pricing, for example (doubling the price that they pay to their supplier), can be expected to see a $60 rise on that same chain, instead of $30, if they maintain keystone pricing. Some jewelers even charge double or triple keystone (marking up a piece of jewelry 2 to 3 times its wholesale value).
This translates to an approx. 10% increase in the cost of raw gold, and therefore a minimum of 10% for finished retail jewelry. Assuming keystone pricing, this could translate to a 20% increase in finished jewelry, when gold changes from $550 per ounce (December 2005), to $600 per ounce (April 2006).
If gold were to reach $800 per ounce, the consumer could expect an additional 33.3% increase in the price of raw gold, assuming a price shift from $600 per ounce to $800, or a 45% increase in the price of raw gold if assuming a price shift from $550 per ounce to $800 per ounce. This could mean a price increase in the retail jewelry world of anywhere from 33.3% if no additional mark up is made by jewelers on the increase in the price of gold, or an over 65% increase in retail jewelry if jewelers maintain keystone pricing (which is a standard minimum for most traditional, brick and mortar and some online jewelry retailers).
How will this effect online jewelers?
Online jewelers are often selling their gold jewelry at discount prices, and so this price shift will be played out differently for online merchants.
Although online jewelers will feel a price increase from their suppliers, many do not charge keystone pricing, and so the price shifts may not be as dramatic as they will be at brick and mortar jewelry stores. Most online jewelers also do not have to contend with stocking merchandise and so they will not have to anticipate the realities of rising costs into their current pricing structures. Traditional jewelry stores may have to sell their gold jewelry at a slight premium in order to anticipate rising gold costs in the near future, in order to cover themselves when restocking items. This will much depend on how traditional jewelry stores choose to face the challenge of rising gold prices.
Since an online jewelry store has lower overhead, they will be most readily able to maintain lower, discount jewelry prices and since they often do not stock jewelry, but drop-ship from suppliers, they will not have to anticipate rising costs, but can more easily sell in “real-time”.
The online stores that will be hit the hardest are the smaller, mom and pop jewelry stores who do not have the technology and work force in place to change their items’ prices quickly enough to meet the rapidly changing price of gold.
In the past, gold may have stayed at $500 per ounce, or near it, for many months at a time, giving online jewelers ample time to go into their websites and change their hundreds–or sometimes thousands of items. Now, with weekly and sometimes dramatic daily changes in the price of gold, it may be more difficult for online jewelers to change their prices fast enough to meet customer demand.
This may serve as an advantage to jewelry shoppers when gold is on the rise, and they may be able to find bargains before a website owner has time to go in and change their prices. It may prove a disadvantage to consumers when gold prices fall back and jewelry website owners do not have enough time to go back in and lower their prices in order to remain competitive.
One such example is Apples of Gold Jewelry, http://www.applesofgold.com, which anticipating dramatic changes in gold prices had custom programs built for their jewelry website of over 1,500 jewelry items. Their programs (scripts) allow their administrators to rapidly change prices on over 15,000 published web pages at the click of a button through an algorithm that tracks the price of gold and updates prices based on current gold prices.
Websites like these will have current and up-to-date gold jewelry prices, compared to smaller stores who have to go in and manually update thousands of pages–which can take weeks–or more likely months for stores with more items.
Online jewelry stores still remain the most cost effective form of jewelry buying, especially now that gold prices have soared and are expected to soar. This may mean increased business for online jewelry stores, if traditional shoppers are willing to cross the threshold into online sales.