MARKET ANALYSIS: precious metals and the market

[intro]After a turbulent couple of years, more reasonable metal prices are creating the conditions for hallmarking figures to climb steadily. TOM DAVIS speaks to some of the best-known bullion houses and assay offices to find out their thoughts on where the market for precious metals is heading.[/intro] There’s no doubt that the reduction in gold price last year - after a high prices and a scrap-buying craze - have provided a much needed uplift in hallmarking figures over the last 12 months. According to the World Gold Council (WGC), last year witnessed gold demand demonstrably pulling back from the “extremes” of 2013. The council’s Gold Demand Trends research shows that annual gold demand was 3,924 tonnes in 2014, 4% lower than the previous year. The year ended slightly up with Q4 demand rising 6% year-on-year to 987 tonnes, but this was driven largely by central bank buying. This, of course, is a changeable and arguably temporary factor. Demand for gold was also partly attributed to jewellery demand, particularly in the UK where improved economic performance helped demand to grow by 18%. This is great news for jewellers who, after a tough few years, should by now be feeling some respite. Hallmarking Hallmarking saw a strong year in 2014 as the overall number of items marked in the UK rose by 13.7% to just under 10.4 million items - this is 1.2 million more than 2013. A standout category was 9ct gold, which rose a staggering 25.1% to just over 3.6 million items – an increase of about 721,000 articles. This performance essentially carried the performance of gold overall, which rose 22.7% from 4.1 million items to 5.03 million items. Silver also showed an increase of 6.8% year-on-year to just over 5 million items. Things were not as positive for platinum which remained virtually static with a 0.6% drop, while palladium showed a decrease of 5.4%, to around 106,000 items. Realistically, further drops in the gold price will still be needed to match the heights that hallmarking reached a few years ago, with gold hallmarking mainly carried by the 9ct category. Scott Walter, assay master and CEO at the Edinburgh Assay Office says: “Although the demand for 9ct hallmarking has shown double- digit growth for most of the year, the gold price will have to drop significantly before we can hope for a return to the volumes that we were experiencing in 2008.” A larger range of unique products Both the Edinburgh Assay office and the Goldsmiths’ Company Assay Office have reported that there has been a wider range of smaller quantity orders. Walter says: “We have seen an increase in customer numbers without a sizable increase in volumes, so the volume of business is spread across a greater number of customers.” The Goldsmiths’ Company Assay Office says that this could be down to retailers requesting a wider range of unique products to sell in their stores. Robert Organ, deputy warden at the company, says: “Ten years ago we saw seven million items on sixty-thousand packets. Now we process three million items in about ninety-thousand packets. We have smaller orders of bigger diversity – there’s a continuing trend of individuality. In line with this, we’ve seen an increase in unique, individual wedding and engagement ring designs pass through our hallmarking process – people are looking for something different.” In line with this, there has also been a growing demand for wedding rings, engagement rings and eternity rings with bullion merchants reporting that retailers are buying this more than any other type of jeweller. Karen Martin, operations director at Betts Metals Sales, says: “The price of gold has not been so much of an issue in 2014/2015 as it has been previously as the price is significantly lower than previous years, however there has not been as much scrap generated and this has obviously affected some of our customers’ cash flow severely. This is one of the reasons we have developed our wedding ring sample box, this means that our retail customers have not had to carry huge stocks as they use the box as a selling aid and then rely on the fact that we can then get the product out the next day.” COMPETITIVE PRICING With fewer retailers having scrap to sell, many are holding less stock in their store and are simply buying when they have the funds available. This means bullion merchants are setting competitive pricing but are still selling the best quality products possible, good news for jewellery retailers. Tony Dobra, executive director at bullion merchants Baird & Co, says: “In all products we have seen demand for cheaper products, while maintaining quality. In the short term, margins are being squeezed as we try to remain competitive while offering better quality than our rivals; however, in the long term we expect that our range and quality will increase our sales.” What this year holds for hallmarking figures remains to be seen but the figures kicked off to a bad start in January. There was a total of 61,424 articles hallmarked in January 2015, down 7.6% on January 2014. Gold articles were down 1.1% and silver was down 14.2%, while platinum and palladium were up 9.8% and 17.5% respectively. There is a silver lining (forgive the pun) however. The improving economic climate means institutional investors are reducing their exposure in gold as a commodity and replacing it once again with property and and stocks in companies. Compared with investors, the jewellery industry is a minor influence on the price of gold, broadly speaking. So as they ditch the commodity, prices should continue to fall. These further price reductions would create the conditions for better jewellery with lower price points, and in terms of enticing customers through the door and shifting jewellery in volume, it means the jewellers have everything to gain. [alert type="success" main_text="THIS ARTICLE WAS ORIGINALLY PUBLISHED IN THE APRIL 2015 EDITION OF JEWELLERY FOCUS." show_close="false"]