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Gold Expressions 2011
Gold Expressions 2011
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How jewellers can make gold pay

Gold prices continue to rocket, but jewellers and manufacturers are working hard to find innovative ways to make the precious metal pay. Stuart Braun reports.

A decade-long bullion bull market has forced the traditional gold jewellery sector to re-evaluate how it does business. As global investors seek sanctuary in gold amid diving currency values and equity market meltdowns, in 2009 investment gold surpassed jewellery as the dominant driver of global gold demand for the first time in 30 years. The gold jewellery industry must now find ways to stop the freefall.

Since 2009 alone, gold prices have almost doubled, and though the ascent is yet to reach the heights of 1980, jewellers worldwide are wondering when it will end. In Europe, scrap gold sales now surpass gold jewellery production. “In effect, the region has transformed from a centre of gold craftsmanship to a gold mine,” stated the London-based Financial Times in December. The business newspaper also asked: “If this demand for the precious metal is slowing, has the traditional physical backbone of the gold market been lost?”

But jewellers should not be beholden to fluctuating metal prices. The success of the customisable silver charm bracelet in recent years has shown how brands and fashion trends can also dictate demand in an increasingly Gen Y-dominated jewellery market. Jewellers therefore need to innovate in the face of shifting commodity prices, and must remember that price is only one piece – albeit a tasty one – of the jewellery design, manufacture, retail and marketing pie.

What then are gold jewellery designers and manufacturers doing to counteract the rising cost of the raw material? “The increasing gold price does eventually impact your bottom line,” says award-winning Sydney jeweller Nicola Cerrone, “so you need to be creative with your design to use gold efficiently.” Cerrone doesn’t shy away from employing high carat gold in his lauded statement pieces, but now, he says, “the diamonds and semi precious stones are the standout feature of the design rather than the gold”.

“The rise in gold has definitely encouraged consumers to look for jewellery made with alternative metals, but not exclusively,” says Laura Sawade, marketing manager at Adelaide-based Peter W Beck, which specialises in precious metal refining and jewellery manufacture.

David Lamb, managing director of the jewellery division at the World Gold Council (WGC), says, “It is still important for the industry to continue pushing the boundaries regarding product development and design, to ensure they are offering consumers the widest selection of choice and the best craftsmanship.”

“People are increasingly interested in yellow gold of high caratage,” says Lamb, arguing that design and innovation can maintain consumer interest in high-end gold jewellery. “There is a desire not just for exuberance or joy, but for the warmth and sensuality of this metal, and excellent craftsmanship and design are playing a key part in this resurgence.”

In such a heady gold market, there might even be hope for chunky bling and the heavy gold bracelet. “The rise in gold price has had a mixed effect with consumers,” according to Sawade. “We are still seeing many people wanting heavy, chunky gold rings,” she says, even though others are “more conservative and perhaps go for a lighter weight product”.

In Europe, the gold market has had a pronounced effect on jewellery design. ?At this January’s Vicenzaoro First jewellery fair in Italy, for example, light-weight filigree designs that gave a chunky appearance without the heavy weight of solid gold were the biggest new trend.

While some consumers are still willing to spend money on precious luxuries, especially within a buoyant Australian economy, it will also be important for jewellers to diversify product offerings, and to market more aggressively. In the US, where broader consumer demand has remained soft, jewellers have been redesigning both product and marketing strategy, notes jewellery industry consultant Jan Brassem. “Jewellers here have been developing – quite successfully – silver jewellery as a substitute to gold.” They have also dressed up lower quality stones to offset losses on gold. “Diamonds they used to throw away a few years ago are now called ‘chocolate’ diamonds. Other jewellers are using bigger semi-precious stones [agates, for example] as a way to hold down the gold content while making the piece appear large.” In Australia, this strategy is helped by the fact that a high Australian dollar has made diamonds cheaper, meaning improved margins on precious stones are already compensating for the higher gold price.

Beechworth Gold
Beechworth Gold

Australian jewellers also need to respond to shifting external variables like the high gold price and a strong Aussie dollar by refining and improving all facets of retail and marketing, argues Joanne Russell of Beechworth Gold, located in the old gold mining belt of country Victoria. “We need to focus on even better quality customer service for return business, as well as being more competitively priced,” Russell says. “We also believe in developing a more productive website, which will enable us to strengthen our broader marketing and sales within Australia and overseas.”

Economical times

With the gold price likely to hit new highs above $1,600 in 2011, and with no ceiling in sight, jewellers are finding other ways to be more prudent with their precious metals. As also reported in the Financial Times, Jason Holt of London bespoke jeweller R Holt & Co, which designs and manufactures luxury jewellery, has invested in technology so that gold remains economically viable for his designs. Computer Aided Design (CAD) technology, for one, will save 15 to 20 per cent of the yellow metal that is lost through more cumbersome hand-made processing. Another way to mitigate the high price of gold will be to introduce an in-house casting process, a service which “traditionally adds a healthy margin”, notes Holt – thus, it’s presumed that in the long-term a high-end jeweller will recoup costly capital investment in casting equipment.

However, not every sector of the gold jewellery industry appears to be suffering. Andrew Cochineas, director of Sydney-based Palloys Group – encompassing Palloys, a casting house, and AGS Metals, a fabricated metals supplier – says the company achieved record sales in 2010. While AGS refined record volumes of gold in 2010 for obvious reasons, Palloys also sold an unprecedented amount of gold in a fabricated form – sheets, wire, stock gauge, solder, wedding rings and so on.

What’s driving this demand? “I’d love to tell you the market is getting bigger, but it’s not,” Cochineas admits. Palloys’ secret is its ability to offer a same-day service. This means jewellers don’t have to hold supplies in a fluctuating market. “The high gold price means it’s much more expensive for jewellers to keep stock,” says Cochineas. “But I take that risk away, because they know that if they want a casting they can get it tomorrow.”

Cochineas also stresses that the true worth of good jewellery is not in the gold. “The real value is in the stone and in the workmanship,” he says, explaining that gold demand is less likely to wane when the metal is only one element of good jewellery manufacture and design.

Ultimately, however, global gold jewellery demand is being held up by India and China. “They’re two major economies and they value gold; it’s part of their DNA,” says Cochineas. The Palloys Group even has a Chinese factory, which is primarily for high carat alloyed gold. “We make carat gold findings and jewellery components there, and we haven’t seen demand drop off at all.”

Huge potential

It’s been forecast that Chinese demand for gold jewellery in 2010 will have risen 75 per cent year on year. Meanwhile, according to the latest WGC figures, India continues to top global demand for gold jewellery. Indeed, this helped fuel a 12 per cent rise in overall gold jewellery demand in the third quarter of 2010. Interestingly, India, China, Russia and Turkey make up 63 per cent of global demand.


The WGC is optimistic that continued demand from these rising gold regions will revive struggling traditional markets. “We anticipate that jewellery demand will grow as consumers, particularly in non-Western markets, get used to the higher price floor,” says Lamb.

With India and China increasing their gold consumption 36 and 16 per cent respectively over the period, how can local jewellers get in on the act? With the number of Chinese jewellery consumers rising to half a billion in the next 10 years, Brassem suggests that jewellers establish a bilingual web presence, and also develop strong ties with Chinese trade associations like the Hong Kong Trade Development Council to establish potential joint ventures. (See box, right).

High gold prices or not, when jewellery exhibits quality, style and collectability, demand inevitably follows. For this reason, 18-carat gold and above is enjoying stronger sales at Palloys. “It’s a luxury, it’s not meant to be cheap,” says Cochineas. “Jewellery is a statement of wealth, success, love. It says, ‘Look at me – I’m special’.”

“As a result of the recent financial crisis and higher prices, we are seeing consumers looking for values, as well as value, in their jewellery purchases,” Lamb asserts, adding that jewellers are beginning to “adjust their strategies” by “focusing on the new, discerning shopper, who not only expresses her fashion personality and individuality, but also demonstrates her investment savvy as she chooses the valuable asset of fine gold jewellery”.

“This is a woman who relates to jewellery as far more than an accessory,” he continues. “Indeed, recent World Gold Council research shows that the financial value of gold may now be the number one driver for gifting gold jewellery; we know that since the credit crisis, men are scrutinising the ‘worth’ of every action and expenditure.”

Although gold lobbies like the WGC remain upbeat – as do local manufacturers, with Sawade predicting that “the market will adjust” to the new price – have we witnessed a fundamental shift in the jewellery industry’s relationship with the world’s oldest precious metal?

Jan Brassem is optimistic the industry won’t move on from gold. “The jewellery industry has been around since Egyptian times. I was in the industry when Nixon took the US off the gold standard (gold went from $35 to $250 in a month or so). The consumers cried and the jewellery retailers panicked. But in a year or so, the jewellery industry adjusted, and had eight years of uninterrupted growth,” he recalls.

Indeed, like most sickness, this case of gold fever will likely pass. But to stay healthy, Australia’s gold jewellers need to adapt their product offerings, attune their marketing guile, maintain quality, and look further afield to rising Asian markets waiting on their doorstep.

More reading:

Worth its weight in gold

India and China continue to power gold jewellery demand

WGC forecasts 2011 gold jewellery trends

SAMS Group Australia

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