Gold prices have soared 20% this year. Here's how that's flipped the fine jewelry industry on its head.
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Al Sandimirova checks the price of gold every single day.
Sandimirova runs Automic Gold, a sustainable jewelry company based in New York, with their wife, Kira. Because they specialize in fine jewelry, the price of gold is extremely important to their business model, they told Markets Insider in an interview.Automic Gold decided that to offset the increased cost of the material, it would raise prices on its jewelry by roughly 30% across the board.
"As a small business owner, I'm always nervous to raise prices," Sandimirova told Markets Insider in an interview. But, Sandimirova needed to buy more gold at some point in the future, and they worried they wouldn't be able to purchase enough material to meet demand without a price increase.At first, sales took a nosedive after Automic Gold made its broad price increase. Luckily, when Sandimirova took to social media to explain the bump in jewelry prices, sales returned to their normal average, they said, showing that consumers are willing to pay higher prices for fine goods and companies with sustainable values right now.
If the price of any of those materials increased, it could hit cost of goods sold, or COGS, according to Chen, though he'd typically expect a three- to five-quarter lag for changes in costs to impact margins.
Chen calculated that for Tiffany's, for every 1% increase in material cost, gross margins could decline by 20 basis points. By that math, a 20% increase in the price of gold could have a 400-basis-point hit to gross margins.On the flip side, some companies have seen a benefit from the booming price of gold. There's been a surge in the recycle and resale market for fine jewelry this year, according to Benny De Kalo, the founder and CEO of Worthy, a luxury goods marketplace.
"As the gold price goes up people think it's time to sell," De Kalo told Markets Insider in an interview. As recession risks have increased, consumers are looking to liquidate some of their fine gold jewelry, De Kalo said. While Worthy has seen 100% yearly growth over the last five years, that's increased in 2019, De Kalo told Markets Insider.
De Kalo also said that Worthy has seen an uptick in demand for recycled diamonds as the price of rough diamonds has bottomed out due to a glut in supply that's made it difficult to make money from new diamonds and put a premium on reused ones. DeBeers' new diamond sales dropped 39% on the year for the same reason.The note explains that diamonds don't hold value as well as gold, which is a safe-haven asset, so during times of recession risk or consumer fear, gold tends to trend up and diamonds down.
The last time gold prices were elevated for a prolonged period, in 2011 to 2012, gold recycling increased and reached about 36% of the total world supply, according to Ehrlich. This included increased levels of diamond recycling, he said.There could be more of the same ahead. "If economic conditions deteriorate, we should expect not only subdued demand but additional diamond supply from recycling," Ehrlich wrote.
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