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Despite central banks and jewellers, gold has remonetized itself
Gold Jewellery Loses Glister as Prices Surge
By Jack Farchey
Financial Times, London
Thursday, December 9, 2010
http://www.ft.com/cms/s/0/b52d834c-03bd-11e0-8c3f-00144feabdc0.html
The UK's Royal Mint is as busy as it has ever been in its 1,000-year history.
Sales of the popular gold sovereign coin have surged 400 per cent from last year, and November was "the biggest single month we’ve ever had in our entire history," says Dave Knight, head of commemorative coins.
The world's oldest coin maker is tooling up, buying a set of new hydraulic presses for its workshop near Cardiff in an attempt to keep pace with soaring demand.
About 100 miles east in Hatton Garden, the traditional centre of London’s jewellery industry, R. Holt & Co. is also investing in new technology, but with the opposite purpose: to reduce the amount of gold it is using.
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Opportunity in the gold coin market
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The contrasting behaviour of mint and jewellery maker shows how the 450 per cent rally in gold prices since 2001 has reshaped supply and demand for the yellow metal. While rising prices have drawn speculative investors to bullion, driving prices even higher, to a fresh nominal record of $1,430.95 a troy ounce on Tuesday, the jewellery industry has been searching for ways to cut its gold consumption.
Last year, investment demand overtook jewellery as the biggest source of gold buying for the first time in three decades. Nervousness in financial markets, economic uncertainty and fears that paper currencies could tumble in value have all drawn investors to gold coins, bars, and exchange-traded funds backed by gold.
But the sharp decline in gold jewellery consumption over the past 10 years raises an important question: if this demand for the precious metal is slowing, has the traditional physical backbone of the gold market been lost?
"You've got to be a bit concerned [about the gold price] if investment demand unwinds," says Walter de Wet, head of commodities research at Standard Bank. "That jewellery demand is just not there at the moment."
Pockets of strong gold jewellery demand remain, such as the market for wedding rings, or in some Asian and Middle Eastern countries where buying gold jewellery is seen as a form of investment.
"Some of the main jewellery manufacturers have turned into collectors," says Scott Morrison, chief executive of Metalor, a Switzerland-based precious metals refiner.
At the cheap end of the market, pure gold jewellery has simply become unaffordable for consumers, especially in the wake of the financial crisis, prompting a switch to alternatives. Philip Klapwijk, executive chairman of GFMS, a precious metals consultancy, says: "There has been a move to silver and non-precious metals."
Fashion has driven jewellers away from gold too. At the mid-market UK jewellery chain Ernest Jones, some of the best-selling items contain little or no gold: a silver bracelet which can be accessorised with charms, many of which are made of stone rather than precious metals, or a leather necklace with a pendant made of silver.
"Jewellery buying is changing. Commodity price increases are just one of the factors in terms of what customers do with jewellery." says Colin Wagstaffe, marketing director of Signet, which owns the Ernest Jones chain.
In future, he says, jewellery consumption "is going to be much more influenced by brands, by the look, and by alternative materials."
At the same time, smaller jewellers are focusing their efforts on the resurgent luxury end of the market, making fewer pieces with higher value and so using less gold.
"Rather than selling 10 products per two hours, we'll sell one. There is a reduced volume but a higher turnover," says Jason Holt, managing director of R. Holt & Co.
Moreover, rising gold prices mean jewellers need more money to buy inventory, at a time when credit has been hard to come by for small businesses. R. Holt & Co. has recently bought a machine to make casts for its pieces of jewellery in order to minimise gold wastage.
Jewellery is not the only traditional area of gold demand to be hit by high prices. The watch industry is struggling: Metalor has closed its business supplying gold to watchmakers because it "crashed," Mr Morrison says.
Less gold is being used in dentistry as well. In a sign of how much gold teeth have fallen out of fashion, when Kanye West, the US rap musician, recently decided to add some sparkle to his smile, he chose to replace his bottom teeth with diamonds.
For some, all this is a warning signal for prices. Mr Klapwijk, of GFMS, says: "If we use usual metrics to look at the gold market and we look at the scale of investor buying relative to the bread-and-butter demand from jewellery, we can see a market that is at some extremes."
That does not rule out further price increases. Mr Klapwijk believes investment demand for gold will drive prices to a record between $1,600 and $1,650 an ounce next year.
But gold, more than ever, will depend on investor sentiment rather than supply and demand. And, says Mr Morrison, jewellery is not going to pick up the slack if investment falters.
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Prophecy Drills 71.17 Metres of 0.52 percent NiEq
(0.310 percent Nickel 0.466 g/t PGMs +Au and 0.223 percent copper)
from surface at Wellgreen Project in the Yukon
Prophecy Resource Corp. (TSX-V: PCY) reports that it has received additional assays results from its 100-percent-owned Wellgreen PGM Ni-Cu property in the Yukon, Canada. Diamond drill holes WS10-179 to WS10-182 were drilled during the summer of 2010 by Northern Platinum (which merged with Prophecy on September 23, 2010). WS10-183 was drilled by Prophecy in October 2010. Highlights from the newly received assays include 71.17 metres from surface of 0.52 percent NiEq (0.310 percent nickel, 0.466 g/t PGMs + Au, and 0.233 percent copper) and ended in mineralization. For more drill highlights, please visit:
http://prophecyresource.com/news_2010_nov29.php
