People will always be attracted to the beauty of gold as an adornment, but few realise that since 2001 the price of gold has more than quadrupled. On 30th December 2010 the London Bullion Market price reached a record $1,411 an ounce. Some experts who watch the gold price talk of $1,600 an ounce in 2011 and $2,000 in a year or two.
It follows that higher gold prices result in increased gold jewellery prices.
The price of gold is largely determined by the relationship between demand (the rate at which consumers and investors purchase gold in the form of bullion or jewellery) and supply (the rate at which gold is extracted from mines or recovered from recycling). Another factor is the strength of the US dollar, one of the currencies used by the Bullion Market.
WHY ARE GOLD PRICES SO HIGH?
Prices are high because since 2001 the overall output from goldmines has fallen by 10%. China increased its yield by 62%, but two big producers, South Africa and Canada, halved their output over the same period. A small proportion of gold is being recovered from recycled jewellery, but this isn’t compensating for the decline in extraction.
Worldwide demand for gold exceeds supply. Uncertain economic times have led investors large and small to buy gold as a ‘safe haven’. In any year the purchase of gold jewellery accounts for two-thirds of annual consumption. In 2010 consumption in China increased by 8%, and experts predict that this will grow in the future. The recession has not affected the buoyancy of the Indian and Asian markets, where gold jewellery has always been highly prized.
Gold prices have also been affected by the weaker dollar and the impact of this on other currencies. In 2009 the ailing dollar made the OPEC countries consider buying gold as a stop-gap while they were looking for a different trading currency for their oil.
Ever-increasing gold prices make gold jewellery more expensive to produce. Jewellery makers and retailers will need to work hard and be creative to satisfy discerning customers.