How Retail Jewellers Can Manage Fluctuations in Gold and Silver Market Prices

As a retail Jeweller, it’s safe to say that the price of gold and silver rises and falls, rises and falls in a never-ending pattern of unpredictability! There can be long spells of stable prices, which are followed by intense volatile periods of frenetic changes both up and down. In general, though the trajectory for both gold and silver in the long-term has been a rise upwards in the prices of both metals.

Managing fluctuations in gold and silver market prices is a large part of the success or failure of any jewellery retailer. We examine best practices for jewellery retailers in this article.

Understanding Gold And Silver Prices

Gold and silver are commodities and as such are openly traded for their raw metal prices on commodity exchanges. Believe it or not, gold and silver prices are updated every second of trading during periods when the precious metal markets are open.

To view the latest prices for gold and silver, we would recommend using a site such as Kitco, which has up to the minute prices. To access the live price (known as the “spot price”), click either of the links below:

• Live gold price at Kitco – https://www.kitco.com/charts/livegold.html 
• Live silver price at Kitco – https://www.kitco.com/charts/livesilver.html 

Although the default on Kitco is to price in Oz, the price can be changed to grams and kilos as alternatives. Pricing is in US$ but can be changed to 10+ other currencies.

In practice, most jewellers will use an end of day fixed price position to value their gold and silver.

Impact To Jewellers On Gold And Silver Price Changes

It’s not as straightforward as you might think, we examine price rise and fall implications for jewellers below.

Impacts Of Price Rises

The impact of a price rise in gold or silver is naturally that the price of buying increases. Similarly, though the value of the stock increases too – so it isn’t necessarily always bad news depending on what stock levels are held and how the price rise is managed.

Impacts Of Price Falls

The impact of a price fall in gold or silver is that the price of buying either metal reduces. Similarly, though the value of the stock falls too. 

It’s not just jewellers who have to manage these price changes, industries which use heavy amounts of precious metals need to react as well. These include as examples – solar power manufacturers (for silver) and electronics manufacturers (for gold).

Managing Stock And Cashflow In Times Of Market Volatility

For what are known as “safe haven” assets, gold and silver initially appear to be volatile. Certainly, in the short-term, gold and silver prices can be volatile – but changes tend to “even themselves out” and 90%+ of the time prices are fairly stable in the medium term. Listed below are some general strategies to manage stock and cashflow, particularly in times of market volatility.

Never Overstock

You might get lucky and have increase stock valuation when precious metals rise, but in general, it’s never a good idea to have excess stock. This depletes cash and can make a jeweller vulnerable in particular when prices fall quickly. The overriding principle should be to “buy what you need as and when you need it”, rather than stocking on the expectation of further rises.

Don’t Gamble On Market Price Changes

You may think that you know the markets or have inside knowledge of where the market is going. If so, it’s probably best to use this knowledge for buying gold as a private investment rather than take risks with the jewellery business. Instead, jewellers should keep a steady stock level, which is great for cashflow and also minimises exposure to volatile markets.

Scrap Non-sellers During Market Rises

Although this rule is also good during market falls, it particularly makes sense to scrap non-selling jewellery for their raw metal value when prices have risen. The raw metal can be repurposed and converted into more popular selling pieces and avoids the need to buy metal at higher prices on the market.

From time to time gold and silver jewellery will need to be revalued.

Repricing Of Jewellery Stocks And Collections

It can be tempting to re-price jewellery stock based on very short-term movements in precious metal market prices. Instead, always base pricing changes in the medium-long term underlying price as you may not even be charged any different for very short-term price volatility. Pricing changes can be calculated through either a simple spreadsheet or through functionality within a specialist jewellery management system.

Should Repricing Be For Entire Stock Or Partial Stock?

Our advice would always be to re-price entire collections including stock. Customers don’t generally understand different prices for effectively the same piece of jewellery. They may conclude that dishonesty is afoot or get suspicious and not choose to buy from you.

When Should A Price Change Be Triggered?

If you are noticing when checking material invoices that there are increases/decreases of 10% in the medium term in precious metal prices, then it’s time to revalue your stock. This can be done gradually or by increasing one range of jewellery items at a time. As long as customers can see the rationale behind the price changes, they are unlikely to object. If you operate a low-margin business, you may need to update prices at a lower trigger point such as 5%.

Precious Metals Are Only Part Of The Jewellery Cost

Also, don’t forget it’s only the precious metal part of the jewellery, which will have changed (e.g., sheets, bars, wire, and grain – depending on which you use). Other material costs won’t have changed (packaging, gemstones, base metals, ceramics, beads, etc.) these might be a larger proportion of costs than you might think. Also, labour costs won’t have changed either. 

It’s important to understand the proportion of costs, which are precious metal-based. With gold trading currently at 75 times the price of silver, changes in the price of gold will be a much higher proportion of the costs and need to be managed carefully.

Conclusion

It’s fair to say that jewellers should react but not “overreact” to gold and silver price changes. Typically change prices when either there has been a sizable medium-term change in pricing, whether this is up or down. Don’t knee-jerk with monitoring day to day short-term gold and silver price changes as you have a day job to do in managing a jewellery business!