There's an analyst in the United States who says the price of gold will hit $US5000 an ounce before 2010. Surely, he is mad, yet another similarly-optimistic prophet is flagging $US6000!
While these represent the most bullish of all gold forecasts, the Worldwide Web is overflowing with talk of short and long-term escalations in gold price just months after the metal set a 26-year high.
It was just over a year ago that gold smashed through the $US725 barrier on the back of a speculative, short-term, trading frenzy - it hadn't been that high since the now-legendary escalation in January 1980 took it to $US850. Despite a generous correction period, gold still sits at over $US660 an ounce (approx. $AUD800) some 14 months later and the market is bracing itself for another upward charge.
How this will affect Australian jewellery retail is unclear. While some retailers (particularly the top end) are welcoming the price rise, believing that it furthers gold's reputation as a metal of luxury, almost all (particularly those in middle to lower markets), are reacting with trepidation.
"Retailers are more cautious," says Angela Eichler, market solutions manager, AGR Matthey. "They're looking for opportunities to do business in ways that reduce their risk and exposure."
One such method has been for retailers to delay all purchases and actively reduce their inventories, sustaining operations from existing stock in the hope that the price stabilises in due time. As price takers, it's often their only option, according to Amanda Catanach, managing director of luxury Melbourne jeweller Catanach's.
"As retailers we have no influence on the base price of gold," she says. "Manufacturing prices are certainly higher; however with large stock reserves we have not as yet felt the full impact of cost increases."
The decision by retailers (en masse) to defer purchasing cost suppliers dearly in 2006 with some stores taking up to nine months to resume normal buying, according to Arthur Papagrigoriou, director of Italian chain supplier Athan Jewellery Imports & Wholesalers: "The high price last year affected the gold jewellery suppliers by causing most retailers to buy cautiously because there was an underlying belief that the metal price would return to normal values. For some it took six to nine months for them to accept the adjusted prices."
However, it was impossible for retailers to rely on existing stock for very long, the strategy an unsustainable band-aid fix that could only provide respite from prices temporarily. As key gift-giving periods arrived, retailers were eventually forced to accept gold as it stood.
What does this mean? Despite some very quiet months following the May 2006 high of $725.25, suppliers remarkably reported similar sales to previous years as retailers eventually resumed buying. The sales still happened, but instead of being spread evenly across the year, suppliers were stretched thin as retailers bulk-bought to exploit low(er) prices.
"In 11 years of business I have been producing the same amount of products in 18-carat gold, only it's tougher now," Eduard Elkin, director, Eduard Jewellery says." Business used to be steadier because shops would order about a three-month supply but trends have changed. It is up and down but business continues to be strong overall."
Such a fact gives credence to the argument that retail sales are not actually affected by the level of the gold price, but instead by its volatility - a line endorsed by Jill Leyland, economic advisor, World Gold Council.
"Jewellery manufacture is price sensitive to a degree, but what people really dislike is price volatility," Leyland says. "Good examples are Asia and the Middle East - together the source of two thirds of all gold demand - where gold jewellery is traditionally sold by weight and priced at the gold price plus a small mark-up. The cost of a necklace varies from day to day so consumers are very cautious. If the price is volatile, they hold back on buying. And they return to buy when the price is perceived to be more stable."
As mentioned earlier, this effect also occurs in western markets, albeit to a lesser degree. While retailers will gamble when the gold price is unstable to ensure the best result, there are a number of factors that deter retailers from delaying purchases and help to keep sales ticking over.
Gold's cultural importance in celebratory jewellery, such as wedding rings and anniversary pieces, means consumers are simply not prepared to show price patience, according to Alberto Tola, director of manufacturing design house Studio Tola.
"Fortunately, it's tricky to wait for some items," he says. "If it's a leisure piece then it's a bit different but wedding rings are a priority and I can't imagine people waiting because of the price of gold."
Gold's long-held position as the leading precious metal also works in its favour to stimulate demand. Even if the price catapulted over the $US1000 mark, it's unlikely that consumers would seek alternative metals because, quite frankly, there are none. No other yellow metal has gold's value and no other precious metal carries its perception - except for platinum, which is more expensive still.
"Retailers will always have limited options working with precious metals. We offer palladium as an alternative in our ring ranges but it's never going to be a mainstream option," Eichler says, adding that gold is also just easier to sell. "Gold, like silver, is tried and tested with an established market perception. No consumer education is needed. I can't see retailers diversifying their materials significantly."
According to Leyland, this says much about gold's uniqueness: "Because of its history, and the way people react to gold, it is unique in many ways. Obviously it will receive some competition from white metals or diamonds but provided you offer people the right sort of gold jewellery, they will buy it."
Assisting jewellers has been the increasing strength of the Australian dollar. In the same way that gold has sweetened as an investment choice for those wishing to escape recent falls in the US 'greenback', a strengthening local currency has helped Australian retailers to offset some of the cost of gold price rises.
"As gold is based on US dollars per ounce, the effect in Australia is still not as great as in other exchanges because our currency is so strong," Catanach says. "Our dollar has been rising along with the gold price and this has compensated for most of the increase."
Incidentally, the industry is also experiencing a drop in diamond prices: "On the other side of the coin, diamonds are now less expensive so they're offsetting the added cost of the gold wedder," Catanach adds.
Rather than losing appeal as its price rises, gold is gaining favour with consumers as a luxury product and ditching much of the reputation it earned as a common commodity during low-price periods.
"Gold's higher price makes it more appealing as a luxury product," says Don Gillett, manager of Brisbane-based Gillett's Jewellers. "Something isn't really precious unless it's expensive."
Peter August, director, Gold Merchants International agrees, stating, "The public perception of gold is changing. People are realising that it does hold its value and is a valid alternative to cash. As time goes on, you'll see the value of paper currency eroding and there will be a lot more discussion about gold."
With its improved public image, gold is less price-sensitive by the day, according to Leyland: "The perception is that a rising price is not much of a deterrent at the middle and high ends of the market," she says. "In fact, it makes people more interested. Increased commentary in the press makes people think about gold more."
Expected to add further to its appeal is yellow gold's hotly-anticipated return to fashion forecasts for the coming seasons.
"The position of gold as a luxury item is now well-entrenched in the consumer psyche," Eichler says. "The fashion trend might have been towards white gold, but yellow is definitely experiencing resurgence."
And with this resurgence comes added attention from high-end consumers who are, according to Catanach, not the type to baulk at higher prices: "The gold price won't affect sales because people at the high-end still want quality. If gold goes to $US1,000, there will be some effect but couples are now spending $20,000 on engagement rings so it will be minimal."
However, Leyland warns that the luxury effect that serves high-end retailers so well is reversed at price-driven retail outlets. "At the lower end, a high price is a deterrent. And it can actually affect the supply chain because credit limits will always limit the amount of stock that stores can hold."
Changes are expected to occur at the middle to low end of the market if the price continues to climb. Already new designs show a shift away from bulky styles to finer pieces, and while part of this is attributable to changing fashion trends, one wonders if this is not also a move aimed at preserving retail margins.
"Heavier gold chains and bracelets are now extinct," Gillett says. "People are now buying finer, more stylish pieces. It's a reflection of the gold price and also a change in fashion styles but it doesn't change the way we manufacture. The price just makes you a little more careful with wastage."
Though pieces may be finer, questions surround whether consumers are willing to sacrifice the grade of gold they demand in the name of price.
"We're not finding any switch from 18 to 9-carat gold," Gillett says. "People have just accepted that the cost has gone up and that it's a rare and valuable metal."
Catanach agrees: "You might get a section of the market who will forego a heavy gold bracelet but those people who would substitute 18-carat to 9-carat, or 9-carat to gold-plating are not really part of the gold market anyway," Catanach adds.
Though a move towards 9-carat is considered minor, except perhaps at the lowest end of the gold jewellery strata, certain suppliers are hedging their bets by incorporating more of the lower-grade material.
"Some consumers choose to buy to a dollar value rather than a look," Papagrigoriou says. "They've got $300 to spend so they buy smaller pieces. We've started importing 9-carat because of the gold price and it's predominately entering the same retailer outlets."
According to Tola, the logic for many consumers is basic economics: "The general public doesn't know what's involved in making jewellery. They see a ring and they want the price. They don't understand price to weight and other factors. When they see a quote for 18-carat versus 9-carat, they want to go for the 9-carat because it's less expensive. I'll never use 9-carat by choice but people are starting to request it."
Suppliers are aware of this and are working hard to inject further value into the metal by employing cutting-edge design and extending product ranges. The challenge is for the industry to ensure retailers maintain stock levels and suppliers have a definite role to play in ensuring this happens.
"We're trying to become more flexible to support both individual retailers and larger key accounts," Eichler says. "We're experiencing rising demand mostly because of our new approach to business. Our gains are as a result of improving our product offerings and efficiency. The gold price is part of our retailers' consciousness but we're adapting our business to offer service-based solutions, range improvements, and more efficient turnaround. These factors are holding us in good stead."
Jewellers eventually must adjust to the widely-held assumption that the price of gold will only continue to rise. If it indeed behaves as the analysts believe it should, clearing $US1000 by year's end, retailer and suppliers alike are in for a difficult readjustment - though again, no long term sales disruptions are expected because of the positive effect that price rises continue to have upon gold's appeal not only as a luxury metal but as an investment choice.
"If gold goes over $US1000, it would be harder to sell," Elkin says," but only in the short-term, because people realise that gold is gold and it always be valuable."
Rather than worry, retailers who maintain their faith in gold and push its added value to their consumers will be rewarded. To do this, retailers must keep stocking, according to Papagrigoriou: "Gold sells. It is difficult to sell jewellery not in stock so those who buy and stock gold will do well. The people who hold out and do not invest adequately will always suffer because the consumer wants to see a range, a choice. Besides, gold simply has no alternative. If someone wants a chain to compliment a pendant, there is nothing else that will do. There is no substitute for gold."
Retailers need to move with the gold price, refining their businesses to represent the added luxury perception that gold brings and avoiding the rock-bottom price competition offered by the chains. Only then will the metal itself truly reflect a value commensurate with its hefty price-tag.