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The big mid-year benchmark

We are coming up to the mid-year jewelry shows, and we will be using those events to measure the state of the industry.  At this point, there are enough signs to make us a bit ambivalent on how the rest of the year will go.

One one side, the top end seems to be holding up well.  It appears that the affluent (and even the super-affluent) are continuing to buy, though at lower average price points.  Some reports from guild stores say that sales are good, though dollars are down.  That sense of caution seems to be supported by the stock markets, which continue to have declining numbers of trades, leading us to believe that people are sitting on the sidelines and holding on to cash.  Charlie Munger, Warren Buffett's partner at Berkshire Hathaway, says that is a bad idea.  The value of cash, he says, is being steadily eroded by inflation, and that will only get worse.

That may be easy for him to say, as he hold billions in assets, but squirreling away cash only illustrates the concern people have for the state of the economy.  Munger compounds his statement by also saying that investing in gold is a bad idea, as it is a static investment, generates no income, and adds value only if the community at large decides that it is worth more.  That, he says, is very questionable, even in view of how gold has performed in the last few years.

Well, gold just hit the lowest price since the beginning of the year, and has not shown any juice of late.  Sure, some say that it is a great hedge against the certain explosion of inflation that is to come.  But are investors getting tired of waiting?  Perhaps.  Sale of gold coins (and silver coins) has dropped considerably in the last months.  The public, which had been buying the metal (rather than ETF's or mining stocks) seems to be pulling back.  The longer the price of gold stalls, the higher the likelihood of prices falling, aided by people rushing in to liquidate the gold they are still holding in the form of old jewelry.  If they have been waiting for the next push up, they may now turn around and sell.

Of course, all of this is speculative.  Other factors may be more important.  Will nations start buying more gold as the euro gets into more and more trouble?  Or, will the dollar gain even more strength in that case, pushing the price of gold down?  There is not an economist in the world that will render an unqualified opinion.  If it was up to our industry to support the price of gold (or not) through sales, we know that the price would be way down.  Down far enough to make gold jewelry far more affordable to many more people.  As we know, we do not hold the cards in this game any more.

In the meantime, silver has taken front and center in the business. No question that silver has become an important, maybe the important, metal for many jewelers.  Gold and platinum still dominate the bridal business and there is no reason at present to think that will change.  Fashion jewelry, however, is the add-on business that builds traffic for retailers and can spell the difference between profit and loss. 

That brings us back to the summer trade shows.  Will retailers be there looking for fashion lines or will they stick to basic diamond goods and bridal lines?  Many continue to do well buying jewelry off the street, and if so, they will have cash to spend.  We saw that effect last year.  Will the improving economy translate into optimism for the fall?  We hope so.

Comments

Hedda Schupak said…
Ben, isn't it ironic that even as Warren Buffett and Charlie Munger say investing in gold is a bad idea, Richline keeps buying up gold companies?
Yes, but we would not be surprised to learn that the large gold holdings of all the Richline divisions are hedged. That would be good business procedure. I wonder if Richline acts differently, given that Buffett prides himself on giving his managers free range to manage. If they are not hedged, today would have hurt a bit.

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