WGC Report: Q1 Gold Prices Reach New Heights

Photo by Anthony DeMarco of the Jewelry News Network

The World Gold Council recently released a report that was behind the times the moment it was publicized. But it does reaffirm the notion that investment demand in gold is pushing the price to levels that were unheard of just months ago.

Against a backdrop of uncertain global markets and a rising price, gold remained one of the least volatile commodities in the wider commodities mix, with average annualized volatility of only 13 percent, down from its historical 20 year average of 15.8 percent, the WGC said Wednesday in its first quarter 2011 Gold Investment Digest. Top-line findings show that positive investor sentiment towards gold and greater confidence in the timing of jewelry purchases in China and India prompted gold to reach new all-time highs in early April—and ultimately leading it to breach the $1,500 per ton mark.

While the report didn’t discuss the ramifications of the higher prices to the U.S. jewelry industry, the price of gold is now reaching a level that will force jewelry manufacturers and designers into making some difficult decisions.

“Gold's performance in Q1 2011 was characterized by continued concerns over the global economy, which led investors to become increasingly aware of gold's qualities as a preserver of wealth,” said Juan Carlos Artigas, WGC Investment Research Manager. “Our intelligence indicates that purchasing confidence in key jewelry markets, notably India and China, increased during the period, as price volatility declined and the dollar weakened against local currencies, resulting in a more measured price increase.”

A key trend noted in the Gold Investment Digest is the growing concern over global inflation, with comments by the U.S. Federal Reserve signaling an extended period of low rates serving to increase inflation expectations in the US. While inflation in countries such as India and China appears to have subsided to a degree, it still remains high. Moreover the threat of food price inflation is a growing concern for consumers around the world. In this environment, gold provides an alternative to hedge this exposure in a way that is not easily replicated by other assets.

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.