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Friday, May 8, 2020

Gold Prices Soar, Pushing Jewelry Industry Into New Uncertainty

New gold futures predict the safe haven metal could reach $3,000 per ounce over the next 18 months.

Gold prices are spiking 

The fine jewelry industry was put on high alarm earlier this week when Bank of America released a new gold forecast, predicting the metal could surpass $3,000 an ounce over the next 18 months. The quickly escalating price of gold — which stood around $1,400 at the beginning of the year — is tied to global and political uncertainties, plummeting oil prices and massive cash injections from governments looking to stave off the economic impact of the pandemic. On Thursday, the safe haven metal’s price stood at more than $1,700.
Soaring unemployment and waning consumer confidence are not the only bad news the jewelry sector now faces. If gold nearly doubles in value, designers say it will change the trajectory of business and design as they currently know it. Many have set $2,000 an ounce as the benchmark for when they will need to seriously reconsider pricing and approach. The last historical high for gold was around $1,900 an ounce in 2011.

“I was hoping to wait this out and take lower margins in the meantime since everyone’s income levels are lower. Now is not the time to get too high on prices because people won’t be able to afford it. But if the gold price continues to climb, we will have to change our prices,” said Beth Bugdaycay, founder of the New York-based fine jewelry line Foundrae, which heavily relies on 18-karat gold in its designs.

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“As the designer and ceo of a company that manufactures and retails, the increase in the cost of gold is a small but significant factor as we navigate the impact of COVID-19,” said David Yurman, cofounder and chief executive officer of his brand. “Through creative design, ingenuity and technology, we can adapt to a changing environment and manage increased costs. As a retailer, we may shorten our margins to remain attractive and competitive. That is our plan. We have been here before and have successfully navigated challenging circumstances.”
Jean Prounis’ namesake line Prounis is based in 22-karat recycled gold — a sustainable practice growing in popularity that follows the same market value as metals that are newly mined. When her label was established in 2017, gold hovered around $1,100 an ounce. Last year it escalated to around $1,500, forcing her to reevaluate pricing and explore goldsmithing techniques that allow for volume while requiring less metal weight. “That’s when we had to evaluate and shift to adapt to this market. We are working in more hollowware and repoussé, using thinner sheets of metal,” Prounis said.
The designer, whose line is carried at Bergdorf Goodman and multiple Dover Street Market locations, thinks that the industry’s outlook on producing collections will change as a result of drastic gold price increases. “Chunkier pieces may move to more private order, it’s not something a designer will make for a collection just to have in their inventory,” Prounis said.
While fine jewelry has been pushing a more minimal aesthetic that relies on precious metals, rising costs may force some designers to incorporate heavier stones to build a sense of drama instead. The result could be a new period aesthetic for jewelry, much like pieces designed around World War Two when precious metals were not readily available and design houses like Cartier relied on semiprecious stones such as amethyst and citrine to comprise the majority of their pieces.

“I am a big lover of stones, they can make a big impact,” said Jesse Lazowski, founder of Marlo Laz. She cautioned, however, that the addition of many small stones to a design requires more settings, thus piling on labor fees. “I think we will see a move into bigger stones all around,” she said.
Diamonds, which have been steadily decreasing in value due to a decline in demand, may appear a better value than gold if the metal’s price continues to increase. “[Diamonds] will feel a lot lower than gold because they are not surging like gold is. Engagement rings should be really interesting,” said Alison Chemla, founder of Alison Lou. She, like others, is now looking into a more direct-to-consumer model to buoy margins.
Tacori’s senior vice president of marketing Michelle Chila said that “if this continues, we would be happy to design with more diamonds honestly, because diamonds have seen a price drop and something with more diamonds in the design has a high appeal anyway.”
Chemla was early to what could become a trend for diffusion lines. Her contemporary collection Loucite peddles seasonal merchandise like lucite hoop earrings and bangles that often sell out in the summer months. Chemla is looking into expanding this category while gold reaches historical highs. Prounis is also looking into a lower-priced line.
Reinstein Ross, which hired Greek designer Ileana Makri as its creative director in November, will release an 18-karat line this summer as a response to escalating gold prices. Previously the jeweler worked in a minimum of 20-karat gold. “We will not compromise on quality, so we will make a switch to more delicate pieces,” Makri said.
While Bugdaycay’s Foundrae label cannot waver from 18-karat gold, as the brand’s enamel technique requires an 18-karat minimum to adhere correctly, some other labels are considering reducing their gold purity.
“Jewelry was always based in 18 karat and so many of us have moved to 14 karat and some people have already moved to 10 karat. I’m not sure what will happen, but I’m interested to see if this will have more of the 18 karat group go to 14 karat and maybe even more people to 10 karat,” said Lazowski. “Karat changes are interesting, chunkiness and big statement pieces are a core part of what we do. I am not going to suddenly make dainty pieces of jewelry,” she added.
Mejuri’s founder Noura Sakkijha, said the company will strengthen its focus on classic styles. “People want to buy products that stand the test of time now more than ever. Everyday jewelry, rather than occasion-based jewelry, will become the thing you want to buy, especially given the increase in price. If people want to buy gold, they will go to more classic designs. Getting too trendy with solid gold pieces might not be the time. There are trendy pieces with silver and vermeil that are more fashion forward,” she said.
Small labels do not have the luxury of stocking up on gold reserves at its current price. Bigger brands or those with a huge muscle of venture capital funding have gotten to work on building their inventory of the metal.
Aurate, the direct-to-consumer jeweler founded by two former finance executives in 2017, revealed a $13 million Series A funding round last June. Cofounder Sophie Kahn said, “One of the things [our production] offers us is to produce with current gold prices and pay when it is sold. This way, we can be smart about the increase of gold prices and how they translate to our customers.”
Aurate said if gold does increase to $3,000 an ounce, that spike “is not linear” to how their jewelry will be priced at retail. Pieces, depending on gold weight and labor involved, could see between a 5 and 50 percent price escalation.
Chila said that while Tacori is mostly focused on platinum jewelry, the brand has gold reserves to last the company between six and 12 months. “We don’t have a backlog of inventory in the vault, everything is made to measure. Price increases would be a question for retailers,” she said.
Tacori is not looking to further buy into gold, as “it’s impossible for anyone to determine demand. We don’t know what we will open up to, if there is going to be a pent-up influx or steady drip. We feel very secure with what we have and are not planning to do anything drastic. If anything it’s focusing on the more fun element of what we can do to shift designs,” Chila said.
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