Editorial Aug/Sept 2006

Precious Metal Prices Give Buyers Nightmares

J-dex magazine has invited Michael Allchin, the Birmingham Assay Master to look back on the performance of the industry over the last twelve months.

‘As we see a drop in the comparative year on year UK Hallmarking figures for the 18th consecutive month we continue to analyse this decline and the forces that are driving it,' says Michael Allchin.

We have always held up the Hallmarking figures as being the best benchmark for showing trends in the jewellery industry. But in the difficult circumstances we are facing at present, the figures need to be interpreted with caution. Despite the falling Hallmarking figures we are hearing success stories from many of our customers.

To try to put the figures into perspective we need to consider the environment we are operating in. Customer spending in 2004 was lower than anticipated, resulting in major de-stocking in 2005 because companies needed less stock to cover their forward sales.

Increased rents and rates are forcing many retailers to rethink their investment in stock levels while faster communication allows precise stock replenishment overnight for the retailer. Distance sellers on the internet and TV Shopping Channels now represent a significant market share and they have less need to hold stock. So the gradual de-stocking continues. Bad news for manufacturers and importers at present, but in the long term, once the overstocks have sold through, volumes could be expected to level out again.

There are many factors which influence consumer spending at a macro economic level; interest rates, house prices, employment levels. The jewellery industry also has to contend with increasing competition from products such as I-Pods, HD TV's , mobile phones and countless other new enhancements to the modern lifestyle which were not on the consumer's “wish list” 10 years ago. In the short term there are also incidental factors; the weather, the World Cup, the holiday season.

But for the fine jewellery industry there is also one other crucial factor; the price of precious metal. Analysis of the gold price over the last five years is very revealing. As shown in the table opposite, the price has been rising steadily since 2000 and the average price per ounce in 2005 was £244.95 as opposed to £184.34 in 2000. Gold jewellery prices are noticeably higher, with the inevitable result that gold does not look like good value for money beside its silver and Costume Jewellery counterparts. Buyers and designers for the price sensitive mid-market are struggling to offer attractive pieces which meet their customers' price expectations. In 2006 the gold price has continued to rise and also fluctuated wildly, giving buyers nightmares and the impossible task of gauging when it is best to buy.

In the first five months of 2006, gold sold at an average of £330.45 per ounce, with a high of £383.54 and low of £298.90. In this volatile and uncertain market, the hallmarking figures would suggest that many have chosen to wait a bit longer before committing themselves. But at some point the pre Christmas orders will have to be placed.

So where will it all end? Who knows? While we need to understand what is going on around us, and that there are many factors which can drastically influence our daily business and yet are not under our control, it is important to keep things in perspective.