As Precious Metals Go, So Goes Jewelry?


By Amey Stone With precious metals hitting a 20-year high, you might be rethinking your holiday gift-giving plans. That gold brooch for mom or platinum cufflinks for your hubby must be getting prohibitively expensive, you might figure.

Not so, it turns out. It would take weeks if not months for higher materials costs to translate into steeper price tags on jewelers' shelves. In fact, this lag likely makes 2005 an excellent year to put some sparkle and shine on your holiday shopping list.

You can buy jewelry now for prices that don't take into account the last six months of surging precious metals costs. Gold topped $500 an ounce on Nov. 29 for the first time in 18 years -- a 20% rise over early July, according to data from the New York Mercantile Exchange. On Nov. 28, platinum closed above the $1,000 mark for the first time since March, 1980, scoring a 16% six-month gain. Silver is the fastest riser lately, reaching $8.40 an ounce on Nov. 29, a 23% gain in the last half of 2005.

"I WON'T RAISE PRICES." Yet jewelry shoppers are unlikely to notice much of a difference if they step into David Wachler and Sons, a high-end jewelry store in Birmingham, Mich. That's mainly because labor and design is such a big part of the price of a piece of jewelry, says Link Wachler, the award-winning designer for the family-owned store. "It's like if paint went up for a painter," he says.

It's also because Wachler won't reach into the case and raise the price of items that he already has out for sale, he says. "For the most part, our pieces have already been designed and manufactured," says Wachler. "To stay competitive, I won't raise prices," he says.

He concedes that if someone were to right now order one of the large, custom-made gold or silver sculptures he creates (these pieces can use up to seven ounces of metal), the price would be higher this season than last -- but not by all that much. For example, the sculpture might go from $30,000 to $32,500 due to the metal's higher price, he says.

NOWHERE TO GO BUT UP? Shoppers for mass-produced gold items, such as chains, might notice a sharper percentage increase in price. That's because companies that mass-produce gold chain or wedding bands will pass along price increases faster and don't have design or craftsmanship built into the price.

That doesn't mean price increases for high-end jewelry aren't coming. Tiffany (TIF) last increased prices at the end of the first quarter in response to a rise in platinum and diamond costs in 2004, says Mark Aaron, a spokesman for Tiffany (although he says the famed jewelry store always adjusts prices). "Clearly, there's a correlation," he says. "If commodity prices keep increasing, eventually jewelry prices will have to go up."

Many investors expect precious metals prices to increase. Kevin Grady, a trader with Man Financial, thinks gold will go higher. He cites surging demand in India, China, and the Middle East. Others blame speculation, saying gold's recent surge isn't correlated to the normal pushes behind price hikes, such as inflation fears or a falling dollar. While it's hard to point to a single reason for the rise in gold, "everything going on globally points to much higher prices," he says. "And I don't think we've seen the full impact in jewelry prices yet."

"PILING IN." And investor demand for gold is surging as money flows where investors see the opportunity for short-term profit, says David Ellison, president and portfolio manager at FBR Fund Advisors. "First it was Internet stocks, then it was real estate. For a while oil was the hot topic. This year all people will talk about over the holidays is gold. People are all piling in."

Ellison worries that precious metals have become a temporary momentum play and will fall back in price when demand for gold and silver fades. But he concedes that the high hopes for gold and silver are reaching a fever pitch, which might make some high-end jewelry a much-appreciated gift this holiday season.

Stone is senior writer for BusinessWeek Online in New York


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