With rising metal prices, jewelry making is no gold mine
Gold and silver were excellent investments over the past year, but the astronomical price rise for both metals could prove tough on the "bling."
Confronted with escalating costs, some jewelry makers are slimming down their styles or changing the metals they use. Others, after having standard pricing for years, are letting customers know that prices are now subject to change, possibly at a rapid pace.
While large jewelry retailers, like Zale's, can lock in metal prices and hedge a future rise by buying long-term metal contracts, smaller jewelry designers and manufacturers don't have the bankroll or the clout; they are at the mercy of the market.
Laura Hoag is still smarting after delivering several gold nugget rings to a customer.
"When I sold them, gold was priced at $350 an ounce. When I made them it was over $500. So I lost money," explains Hoag, who runs Woods Creek Jewelry in Jamestown, Calif. "At $350 an ounce, I can make jewelry that is reasonable for us to make and reasonable for people to buy, but this market is making it really difficult for everyone around."
Not much of the increase in metal prices has yet been passed on to consumers. The price for gold has recently risen to as high as $732 an ounce, from about $440 in August 2005. But the World Gold Council, the industry's marketing arm, estimates that in 2005 most retailers increased their prices only 10 percent to 20 percent on new gold jewelry or when replenishing stock of existing designs. However, the council expects an additional 15 percent to 25 percent rise this year when buyers stock up for the Christmas holiday season.
One reason retail prices haven't risen more is because the margins for the jewelry industry aren't as tight in the United States as they are in other countries, such as India, where jewelry is often considered an investment. Also, much of what jewelry consumers are paying for isn't the cost of the raw materials but the cost of design, marketing, distributing, and retailing the final product.
The fact that many pieces are dominated by precious stones like diamonds or sapphires also tends to make metal prices a smaller portion of the final cost. Designers have also attempted to find ways of keeping their prices down for fear of losing customers.
"Some of the designers, if they are making a solid gold pendant, are doing things like using cutouts or filigree, because it gives you the scale without the weight," says Janet Goldman, ceo of Fragments, a high-end jewelry retailer based in New York City. "But a lot of designers are saying jewelry will get smaller because of the price of gold."
Not every jeweler sees high metal prices as a problem. Pat Bishop says the high prices will probably help his sales.
"It's a stimulus because the price of gold is in the news all the time," says Bishop, who manufactures jewelry and runs several jewelry stores in Dallas. "In the late 1970s, when we had the volatile market, it did the same thing. People wanted to own gold jewelry because they thought it was more valuable."
Goldman notes that a version of that rationale is also at work in the showrooms. "In these times of flux," she says, "sales people are telling customers, 'If you want to by gold, buy it now, because prices are only going up.' "
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