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Thursday, April 14, 2011

Jewelry Industry to Feel the Pinch as Gold is Forecasted to Rise Again


London-based GFMS, said Wednesday in its semi-annual Gold Survey report that it expects the precious metal to hit $1,600 a troy ounce due to investors’ concerns over inflation and monetary policy. This cannot be good news for the jewelry industry.

“The prospects for gold prices this year remain bright,” said Philip Klapwijk, GFMS chairman. “Investors continue to be concerned about the outlook for inflation, with governments in general showing little appetite to tighten monetary policy significantly. And, with the spotlight also shining on the state of government finances, there is every reason to believe that investors will remain focused on the gold market.”

Klapwijk went on to say that gold jewelry demand will not be negatively affected by the higher prices. “Growing price acceptance by consumers will help lift jewelry demand, while generating only a muted response from scrap.”

Needless to say, much of the jewelry industry in North America does not share this rosy outlook. The report details that worldwide global jewelry did increase year-over-year in 2010, but its strength was driven by demand in China and India.

“Even so, the report highlights that many key jewelry consuming countries remained net suppliers of gold to the international gold market,” Klapwijk said. “Notable casualties include the United States, the European Union and the Middle East with each seeing scrap supply exceed jewelry consumption in 2010.”

The statement from GFMS did not say whether the projected in gold jewelry demand will remain regionalized or whether the tough conditions in the US, EU and the Middle East will continue for 2011.

Toronto-based jewelry designer Reena Ahluwalia says the industry needs to educate consumers on the value of the rising price of the precious metal.

“Rising gold price remains a concern for jewelry,” she said. “It is important for consumers to know what they are buying is worth more than what it was a year ago. It's about buying value and has to be communicated with the consumers. Consumers are conscious of how much they are willing to spend. We are looking at other metal and material alternatives to offer a more comfortable price point to our end consumers. Bridal market is still strong and couples are buying without compromise.”

Jewelry designers and manufacturers have already been substituting other metals for gold and in some cases mixing metals. In addition, some designers are creating lighter-weight gold jewelry by incorporating space into their designs.

According to the report, gold prices rose by 26 percent in 2010, which is down from the 2009 mark, but is still the second highest on record.