The gold-silver price impact on the jewelry business

The gold-silver price impact on the jewelry business

Gold and silver price are soaring in the last couple of months. Silver price went from $12 in March 2020 to $29 in August 2020 (242% increase), and the gold price went from $1470 per ounce to $2070 per ounce (141% increase). This has a great impact on industries that rely on gold and silver. Jewelry industry gets double hits this year by COVID-19 and high gold and silver prices.

Silver price 2020

Gold price 2020

What is the impact on jewelry business when gold and silver price is soaring?

  1. Your product cost is on the rise.

No matter you are buying gold and silver metals, findings and make jewelry on your own, or you are purchasing finished jewelry for reselling. You will see the cost of your inventory and material have a significant price increase. Most of the jewelry manufacturers and wholesalers have a very thin profit margin. They are very sensitive to the silver and gold market prices. Their product price will fluctuate with daily gold and silver price.

  1. Gold and silver jewelry sales may slow down temporarily.

The jewelry material cost is higher; it will push the finished jewelry product to a higher price point. As the past statistics show, customers do need some time to adjust to the new price point. Plus, silver and gold prices usually arise during or after an economic crash or recession. Jewelry sales may slow down for some time and then climbing back up.

  1. Your profit margin may get squeezed.

You may have a specific price point that you want to stick with and being competitive. You may be afraid of the impact on your sales after you raised your price. If you decided to hold on to your existing price point, your profit margin will be squeezed. Make sure you evaluate your pricing decision and keep your business healthy.

  1. Jewelry business will be fine in the long run.

All we discussed above seems all bad news, but they are all temporary. History has proved jewelry businesses will be doing fine in the long run, as long as you adapt to the new changes. During 2010-2012, the price of silver skyrocketed from $10/ounce to $43.92/ounce and dropped back down below $20 after 2014. In the same period time, the gold price increased from $900/ounce to over $1800/ounce. However, the global jewelry business stays healthy. See the chart below of global jewelry export in U.S. dollars. Please note the increase in the jewelry product is a factor of the big increase in the dollar amount in 2011 and 2012. After a factor, the price increase, the global jewelry industry still stays healthy.

Export Value of gold, silverware, and jewelry worldwide (in billion U.S. dollars)

Source: Statista.com

silver price from 2001 to 2019

So, no reason to panic when you see today’s skyrocketing silver and gold price. We have been there and done that. People will appreciate gold and silver even more during the economic downturn. People will keep buying jewelry at the new price point. However, it doesn’t mean we don’t need to make any effort and just wait and ride the tide out. Please read what a jewelry business can do during this time.

What can jewelry business do when silver and gold price is skyrocketing?

  1. Inventory bookkeeping and pricing management is more important than ever

It is imperative to have a good record of the cost of your material or inventory during this time. When the precious metal price is flat, you may mark up your product at a specific price point and ignore the small fluctuation of your cost. It will stay within a safety margin, and you will make pretty much the same profit on the average. If this is what you have been doing in the past, please be alert, this method will no longer work now

First, it would be wise to review your current pricing and make sure you are still making an acceptable profit.

The calculation of the cost of your jewelry products may be very tricky now. If you are making jewelry, you may be using the same material purchased at a very different price. The same finished jewelry you purchased from wholesalers at a different time may have a big price difference. In this case, one option is to even out the purchasing cost and re-calculate the new price and increase your product price immediately. Alternatively, you can keep new and old stock separate. Sell out the old stock in the old price first and then increase the price and start selling the new stock. Also, watch what your competitors are doing and decide your next move.

  1. Reconsider your profit margin.

Each jewelry business has its set profit margin and wants to stick with it all the time. When material costs increased, the finished product price will eventually increase too. Should your profit margin percentage stay the same? Let’s look at one example, one piece of your silver jewelry cost you $30 to make and sell, and you sell it at $60, your profit margin is 50% or $30. With the increased material cost, your cost became $50; you want to stick with your 50% profit margin and increasing your price to $100. Now, you can make $50 in profit. However, you find your price is no longer competitive, and it impacts your sales. It may be time to take another look at your old profit margin.

Usually, when gold and silver price increase, the effective purchasing power of our dollar decreased due to inflation. Say, we have a total of 5% inflation. The old $30 becomes $31.50. To make the same amount of inflation-adjusted money, you could consider the new price as $50 (cost) + $31.50 (profit) = $81.50. Even though your profit margin dropped from 50% to %38.65, you still make the same amount of inflation-adjusted dollar as before. That may be something you can look into when adjusting to the new pricing.

For the same reason, when your cost decreased significantly in the future, you may have to increase your profit margin to make the same amount dollar.

  1. Design adjustment

This is not the first time precious metal prices rise dramatically all of a sudden. In the past, we have observed the cost of the gold and silver price will affect the jewelry design trending on the market. Before the year 2005, when silver price stays below $5/ounce, we see a lot more chunky silver jewelry design on the market. After the silver and gold price increased in recent years, dainty and minimalism jewelry is in trending. Gold-filled material gets popular on the market. We had discussed this trending change in our article: Trending Jewelry: Small is Big

Watch the new design trending change on the market. Keep adding value to your jewelry brand. Like personalized options, better packaging, better customer services, better warrantee policy. People will appreciate the value you add to your brand and pay the fair price for that value.

As a final word, since 1971, when the government took the U.S. dollar off the gold standard, the dollar can be printed without restrictions. The effective purchasing power of our dollar became weaker and weaker. However, gold and silver value remain stable. During COVID-19, the Fed has printed trillions of dollars; it will lead to a lower dollar value. People will appreciate gold and silver value even more than before. Jewelry has been a popular product for thousands of years due to its value keeping value. Adjust to the new pricing change, sales channel changes, and keep focusing on design and add-on values. I wish you the best in your jewelry business during this difficult time.

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