Pen Pals

May 1998

Precious Metals:Data & Statistics

Gold Prices Continue Downward Trend

Here's hoping your eyes don't glaze over when a savvy customer asks why you haven't lowered your gold jewelry prices to reflect lower gold commodity prices in the past year.

You may have numerous reasons. But what your customer may find interesting is that your suppliers have lowered prices little – if at all. It wouldn't hurt to offer this customer a quick lesson in jewelry industry economics.

While gold commodity prices have fallen by $100+ from two years ago, another equally important – but rarely considered – factor plays a major role: price volatility. The range of gold prices widened to near-record levels in 1997 ($84.80 separated the highest and lowest prices, says the World Gold Council). That's quite a change from the relatively stable prices of the past decade. And no one – manufacturer or retailer – wants to lower prices for stock merchandise today if he or she has to pay more tomorrow to cover higher commodity prices.

Price volatility continues this year (see chart) and will remain a factor for several reasons. First, producers are trying to shore up prices so they can pay to repair and expand old mines and develop new ones. Second, prices will continue to face downward pressure as long as there's a strong dollar (which makes stocks more attractive than gold to investors). In addition, the market fears some European central banks may dump their gold reserves to jump-start their economies, plus there's uncertainty over what role gold will play in the European Monetary Union's effort to launch a single currency.

Copyright © 1998 by Bond Communications.


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