Gold Price Decline Reflects Low Demand from Jewelry Buyers
by Christina Lee on February 4th, 2009
The recent drop in gold prices has become the latest indicator of how consumer demand for jewelry continues to decline after the holiday season.
Gold prices fell for the second day in a row today as propelled by the weak demand from the jewelry sector, trading at $901.40 per ounce, The Economic Times reports. Yesterday, investors observed a more than two percent drop in prices – the biggest daily percentage decline prices seen over the past three weeks.
While gold prices traditionally decline during a recession, the nature of such a drop has changed throughout history. The recessions of 1980 and 1982 saw both sharp declines and rebounds, though the recessions of the early 1990s and Sept. 11 saw little change, according to the American Institute for Economic Research.
As for the current drop in gold prices, it has only surfaced after a 250 percent increase over the past two years. Gold prices were as low as $400 per ounce in 2006, before it leaped to $1,000 per ounce in 2008, Gold Investing News reported yesterday.
Over 70 percent of gold’s global demand is comprised of jewelry buyers, who have already turned to less expensive materials, if not trying to reduce buying altogether because of too-high inventories. Wholesale inventories of metals had risen by 28 percent from November 2007 to 2008, according to the Census Bureau.
To cope with this, in addition to generally low sales, a few surveyed in December by Jewelers’ Circular Keystone stated that they planned to switch from 14k gold to mixed metals and sterling silver.
“Basically, there’s not much interest from the [jewelry] sector and there’s profit taking as well as light selling in Asia,” said a Hong Kong dealer to The Economic Times. “But we can still bargain hunt … at lower levels. That’s why we also see a rebound, which is driven by bargain hunters.”
Money manager Eric Sprott, who foresaw the recent collapse of banking stocks last year, says now that current U.S. economic conditions could lend to gold prices more than doubling, according to Bloomberg.
In the meantime though, both gold and platinum prices have fluctuated greatly over the past few months. Back in May 2008, gold priced at $930 per ounce, while platinum peaked at almost $2,200 per ounce, National Jeweler reported.
Alongside silver prices, current platinum prices have been dropping as well, and today they amount to 0.2 percent less than yesterday at $970 an ounce, according to Bloomberg. The decline offers hope to the bridal jewelry market, as jewelers can now price pieces lower to draw in more consumers.
“Historically, there has been a gap between the high level of design and sales because the price of platinum has been a barrier to quite a few consumers,” said Huw Daniel, president of Platinum Guild International, to National Jeweler. “What we’re seeing now is the desire and demand is still there, but the price has come down. If you’re looking at the price differential, it’s an opportunity for the consumer.”