Since the beginning of this year, gold rose over 22 percent in value. Speculators are mostly responsible for the upsurge, investing heavily in the metal as the value of the dollar plunges. As gold rockets upwards, what happens to the industries that rely on it?
Presently, jewelers are in quite the precarious situation: many of their items are made using gold bullion which is driving up their costs, but consumers are unwilling to pay more for items as they tighten their wallets during uncertain economic times. For many jewelers, their supply chain has been disrupted by gold shortages and mounting costs, forcing them to not only use less expensive materials like tungsten and silver, but also buy metals in bulk at fixed prices to avoid further price spikes.
The Wall Street Journal reports that a 14 carat gold chain that cost $250 in 2000 now costs $1,000. Jewelers saw their profits decimated during the recession, with sales down 2.7% in 2008 and 1.6% in 2009. To reduce costs, jewelers are funneling cash towards the comparably less expensive metals, like tungsten, silver, and platinum to offset business costs. Moreover, many jewelers are buying gold at locked-in prices – a tactic known as hedging – to prevent future loses. However, if prices fall, businesses take the loss.
Businesses anticipate the continued rise of commodity prices, leading them to trim inefficiencies in their supply chains to offset added costs from purchasing metals.
Presently, jewelers are in quite the precarious situation: many of their items are made using gold bullion which is driving up their costs, but consumers are unwilling to pay more for items as they tighten their wallets during uncertain economic times. For many jewelers, their supply chain has been disrupted by gold shortages and mounting costs, forcing them to not only use less expensive materials like tungsten and silver, but also buy metals in bulk at fixed prices to avoid further price spikes.
The Wall Street Journal reports that a 14 carat gold chain that cost $250 in 2000 now costs $1,000. Jewelers saw their profits decimated during the recession, with sales down 2.7% in 2008 and 1.6% in 2009. To reduce costs, jewelers are funneling cash towards the comparably less expensive metals, like tungsten, silver, and platinum to offset business costs. Moreover, many jewelers are buying gold at locked-in prices – a tactic known as hedging – to prevent future loses. However, if prices fall, businesses take the loss.
Businesses anticipate the continued rise of commodity prices, leading them to trim inefficiencies in their supply chains to offset added costs from purchasing metals.
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