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by Martin Galasso
The demand for fine platinum and gold jewelry is at an all-time high, and both achieved record numbers during 1997.
But it wasn't easy.
In this Platinum and Gold Update, we take a closer look at the current market status of the two most frequently used metals for diamond jewelry designs.
The Rush Is On
According to the World Gold Council, the price of gold has been falling ever since January, and recently reached an 18-year low. At time of publication, on the Comex division of the New York Mercantile Exchange gold was $287.50 a troy ounce.
Demand, however, is currently at an all-time high. Through the third quarter of 1997, demand for gold swelled 11% over the same period one year ago, reaching a record 2,191 tones.
Why the rush? A driving force behind this remarkable surge is the growing consumer demand for gold jewelry.
In the third quarter of 1997, sales reached $2.3 billion, up 2.5% in dollars and 6.7% in volume from the same period in 1996.
Department stores led the charge, with dollar sales up 7.6% and unit sales up 7.4%. Independent jewelers, the second largest retail channel in dollar sales, showed sales increases of 7.5% while unit volume grew 6.42%.
Discount/catalog showrooms continued to lag due to decreases in the catalog showroom sector, with dollar sales tumbling 12% and unit volume up 5.9%.
While gold jewelry will sell all year around and is unaffected by seasonal trends, 40% of all gold jewelry sales in the U.S. are concentrated in the Fourth quarter.
According to The World Gold Council's most recent product classification report, earring sales were especially strong in September, with a 14.6% rise in dollar sales and a 22.5% increase in volume sales versus a year ago.
Charms also showed steady growth with increases in dollar sales of 5.8% and 6.1% in volume, and bracelets followed the trend with an 8.2% increase in sales and a 7.5% increase in volume.
The Council is optimistic that demand for gold jewelry will continue to post strong gains through the end of the year.
"Demand for gold was at an all-time high in the third quarter and overall demand has remained strong at the beginning of the fourth quarter," said George Milling-Stanley, Manager, Gold Market Analysis at the World Gold Council. "The record-breaking performance over the last nine months of 1997 provides ground for optimism about the prospects for the year as a whole."
According to Milling-Stanley, demand for gold jewelry in the U.S. should continue well into the holidays, thanks to a healthy economy. "We've had reasonably good economic performance all year, and personal incomes have been doing very nicely," he said. "These are the most important single determinants of gold demand."
Overall, gold jewelry demand has held up well in most parts of the world. Any weakness lies in its investment demand, and this is a key factor behind the lower prices.
All That Glitters Is Not . . .
Fashion designers know it, and so do celebrities. Platinum is "in." Due to its inherent strength, understated elegance and unique characteristics, platinum has become the metal of choice for many designers and consumers, and its popularity continues to spread.
Consumption for American-manufactured platinum jewelry has increased nearly 300% in the past three years. Although reduced supplies have sent prices into the stratosphere, platinum remains the fastest growing segment of the U.S. jewelry industry, with a 400% increase in production from 1990 to 1997.
According to Gordon Bassett, General Manager of Platinum Marketing at Johnson Matthey, an absence of Russian exports in the first seven months of the year reduced world supplies of platinum by 210,000 ounces to 4.77 million ounces.
While there has been some catching up, this diminished supply lifted the price by 42%. At time of printing, the price of platinum was $376.50 an ounce.
"Demand remained solid and fixated the supply," said Bassett. "Platinum jewelry growth —- while somewhat unexpected — has been quite good. The steadily decreasing demand for platinum jewelry in Japan has been offset by rising demands in the U.S., China and (to a certain extent) in Europe."
Johnson Matthey estimates that the demand for platinum will grow to nearly 5.1 million ounces in 1997. Much will come from the U.S., where net domestic demand climbed to 140,000 ounces in 1997, up 60% from 1996. Although this is a relatively small number compared to Japan’s consumption, it represents a 50% annual increase.
Sales of platinum jewelry are up 700% in the last five years, and demand in 1997 has made this a record year. According to Laurie Hudson, President of The Platinum Guild, "Clearly, platinum is the fastest growing segment of the U.S. jewelry industry. The extraordinary increase in sales reflects how consumers relate to platinum’s enduring strengths, purity and rarity, along with its subtle and conspicuous beauty."
What lies ahead? "Platinum is currently suffering from a spin-off of lower gold prices, but sustained demand and the tight supply situation should bring prices back to where they were earlier this year," Basset said.
"We expect platinum to be in the range of $400-$500. On the jewelry side, we will see continuing demand in the U.S. The Japanese are not expected to recover soon, although the industrial and traditional (petroleum and glass) demand will be up modestly," Basset added.