Member Press Releases

Precious Materials insight; Fears over coronavirus send gold soaring, boost demand risks for jewellers

09 Mar 2020

materials insight 2

Fears over coronavirus contributed to push “safe-haven” gold to more than 7-year highs, and prices could rise further, compounded in the UK by heightened concerns over the outlook for jewellery demand as the economy faces new pressures.

Gold hit its highest since December 2012 at $1,702.56 an ounce on March 9, before selling off on profit booking as stock markets plummeted, dealers said.

Bullion prices can potentially climb further if coronavirus has a prolonged impact on economic activity around the world as the number of cases rises, they added.

“We see strength in gold, even if not in the other precious metals, while the general equities market remains vulnerable to further big falls,” wrote Lawrie Williams, gold market commentator for bullion dealer Sharps Pixley.

Gold is widely considered to be a “safe haven” asset, attracting investor flows during times of heightened geopolitical turmoil.

While stock markets have tumbled in recent weeks, gold prices have surged.

The fears over the impact of the virus have raised worries over the outlook for UK demand for jewellery and watches, with much of the immediate pressure piling onto the retail sector, while manufacturing has held up well so far.

A possible substantial rise in the number of coronavirus cases in the UK could, in a worst-case scenario, lead to travel restrictions and locked-down towns and cities, similar to measures seen in northern Italy, eroding footfall into shops.

For retailers, many of whom are already facing rising online competition, the impact of coronavirus will hinge on its effect on the economy, including prospects for a softer pound.

The Bank of England is widely expected to follow the U.S. Federal Reserve and cut interest rates at its next meeting on March 26, in order to help stimulate the economy, according to several City analysts.

Goldman Sachs has predicted a 0.50 percentage point cut by the Bank of England.

The 0.50 percent U.S. rate cut on March 3 supported gold. Bullion prices fare better in a climate of falling interest rates because gold bears no yield.

The pound-dollar exchange rate will continue to be a huge focus for UK jewellery retailers, wholesalers and manufacturers as coronavirus spreads.

Some analysts expect sterling to remain weak against the U.S. dollar because of concerns over the progress of UK-EU trade talks post-Brexit, combined with the worries over coronavirus, although the dollar has weakened since the U.S. rate cut.

A softer pound will make it costlier for UK manufacturers and retailers to source precious metals, diamonds and gemstones, which are denominated in dollars.

 gold bars

Scrapping gold

The soaring gold price is a great incentive for customers to visit retailers to scrap their bullion, and for retailers to scrap old gold stock for cash.

“If you have old stock in gold that hasn’t sold, check its weight, look at what you paid for it and calculate its current value. If you’ve had it a long time and it’s worth more now than when you bought it, our policy is to scrap it and circulate the cash,” said NAJ member Vanessa Burkitt, owner of retailer Catherine Jones of Cambridge.

“In our industry, if you invested in gold, holding it has been hugely beneficial. So maybe it’s time to sell?”

In retail, the coronavirus outbreak as already impacted popular tourist destinations.

Locations such as Bicester shopping village, near Oxford, which was heavily reliant on Chinese tourists, have seen a drop in visitors.

The main worry on the High Street is that longer term economic uncertainty and concerns about entering public spaces will continue to cut footfall.

“This, following a poor run-up to Christmas, is the last thing we need right now,” said Kelsall, founder and chair of Harriet Kelsall Bespoke Jewellery, with outlets in central Cambridge, north London and Hertfordshire.

“Having a design studio in central Cambridge, I have noticed the immediate impact on tourists in the town centre and it is easy to see that visitor numbers are down,” Kelsall said.

“We have noticed that this has had a slightly negative impact on our Cambridge design studio figures. However, our other two studios remain very strong and so far the impact has not been big.”

If travel restrictions are imposed, there will be opportunities for local business as people may take time to rediscover their area.

Some retailers are seeing online sales rise.

“We are experiencing more online sales at higher values and more enquiries as people are opting to buy their jewellery from the comfort of their own homes,” said Jayant Raniga, CEO of London retailer PureJewels, which largely offers 22-carat gold jewellery to British Asian customers.

Among the precious metals, platinum demand is benefiting from the white metal’s sizable discount to the bullion price.

Jewellers are pushing platinum in the engagement and bridal markets.

Platinum hallmarking data have increased in recent months, while gold and other precious metals have declined.

“During the last quarter we have experienced strong sales on the back of rising metal prices. There is a demand from the public which needs to be met and we are in a great position to meet that demand,” said Gary Wroe, managing director of Birmingham-based Hockley Mint, a leading jewellery manufacturer.

“We remain optimistic about continued volume but there is the threat of COVID-19 (coronavirus) in the background, which may continue to challenge global business.”

The soaring price of palladium, used in catalytic converters for petrol-driven cars, which are seeing growth in part due to a shift away from diesel, has seen its demise as a jewellery metal with both hallmarking and volume significantly reduced, and this is reflected within Hockley Mint.

“Platinum has become the metal of choice and remains relatively cheap with strong demand,” Wroe said.

“We are seeing more 18-carat yellow gold and platinum heads due to the high palladium content in 18-carat white gold.  Gold sales, however, remain stable. It is the stability within the uncertainty of stock markets and is still a strong metal of choice for consumers.”

Andrew J. Morton, manager director at Birmingham-based Weston Beamor Group, another top jewellery manufacturer, said: “As a result of the increased price of gold, we have seen a clear increase in demand for both platinum wedding rings and engagement rings.”

He added: “Our ability to turn around high-quality product, quickly and cost-effectively in the UK, has meant that for the most part, our customers have been unaffected by this global epidemic.”

A worry for UK manufacturers will be disruptions in the supply chain from coronavirus-hit hotspots, notably China and Italy, major origins for manufactured jewellery, parts and machinery, which could affect their speed of response to retailer demand.

Among the most resilient UK manufacturers will be those who make parts themselves or source supplies more locally, but this situation may change if materials are exhausted.

The cancellations of international jewellery fairs such as Baselworld, and Watches & Wonders Geneva, due to concerns over coronavirus, have reduced opportunities for retailers to re-stock.

Some fairs have taken place, such as INHORGENTA Munich and the Bangkok Gems & Jewelry Fair, but both events saw a number of visitors stay away.

The fairs that decide to go forward, are taking strong precautionary measures, such as offering widely available hand gel and masks, deep cleaning toilets and sinks more regularly, and having medical staff on site.

 

Source: David Brough