Gold’s wild rally traps jewelers between soaring costs and cautious customers

• Gold’s record-breaking rally is squeezing jewelers’ profits and testing how much shoppers will pay.
• Feverish investor appetite for haven assets has sent gold soaring more than 50% this year.
• From boutique brands to global giants, jewelers are redesigning, repricing, and bracing for volatile costs.

When Isaac Yuan started working in his uncle’s jewelry factory in Hong Kong two decades ago, gold cost around $400 per troy ounce.

In October, the metal neared $4,400 an ounce. The 43-year-old, now cofounder of Eli J Fine Jewelry in Singapore, calls the latest surge the most dramatic he’s witnessed in the jewelry business.

“Everybody is talking about it. The move from $3,000 to $4,000 per ounce was really quite crazy,” Yuan told Business Insider, referring to gold’s price gains since March.

Gold’s epic rally this year has lifted the world’s favorite precious metal to record highs, leaving jewelers around the world struggling to balance costs, design, and demand.

Gold prices have surged more than 50% this year as investors piled into safe-haven assets, while central banks also stepped up their gold buying amid global geopolitical tensions.

The spot gold price hit a record high of about $4,400 per ounce on October 20 before retreating sharply. Prices have since eased to around $4,000 an ounce.

The price gains have stunned Yuan and his wife, Joanne Sim, Eli J’s designer and cofounder. They had to rethink how they price their pieces.

“We try to absorb some of the cost if it’s reasonable. We don’t want to shock our customers, especially regulars,” Sim said.

Eli J’s pieces are primarily made from 18-karat gold, which is 75% pure gold. As spot prices surged in recent months, the jeweler raised prices “by a few hundred dollars” per piece on average.

That means profit margins could tighten by up to 10% this year, the couple said.

The strain on buyers has begun to show. Sim said about 20 to 30% of customers pick cheaper 14-karat gold, compared with about 10% in the pre-gold-rally days.

The store offers price-conscious clients who want white gold the option to switch to platinum, whose spot rate is around $1,595 per ounce.

For ready-to-wear pieces, Eli J keeps prices within reach by using 14-karat gold for some designs and opting for thinner gold bands if the design allows. The jeweler has also held off launching new pieces with more complex, gold-heavy designs this year, in part because of high gold prices.

Sim said most customers still prefer 18-karat gold pieces for heirloom-quality jewelry.

“At the end of the day, I think that those who want to buy fine jewelry or create a bespoke jewelry piece understand that gold is lasting, and that gold is forever,” she said.

Asia’s traditional jewelers feel the pinch

That tension between craftsmanship and cost is shared by traditional gold shops in Asia that typically charge by the weight of gold.

At Kim Poh Hong Goldsmith, a third-generation family business in Singapore, demand for 22-karat gold jewelry — the heavy, machine-made pieces traditionally favored in much of Asia — has fallen 30% to 40% over the past two months.

“Prices are too high, nobody is really buying,” owner Susan Tan told Business Insider in mid-October when gold prices were surging. “We used to place orders with wholesalers every few weeks. We’ve stopped ordering for now.”

The store’s one bright spot is 20-karat gold Peranakan jewelry, a traditional local style known for its colorful enamel and intricate goldwork. The pieces are designed by Tan’s sister and handcrafted in Singapore by elderly artisans.

“Customers may think over the prices for a few days, but they still come back if they like the design because they can only buy them here,” Tan said.

To sustain demand, Kim Poh Hong — like Eli J — has also taken a hit to its profit margins for such pieces.

Record gold price depresses jewelry demand

Overall investor demand for gold, from ETFs to bars and coins, is up. However, jewelry demand usually falls when prices rise.

That demand slump is playing out across the world as customers spooked by gold’s spike hold back on buying. In India and China, the world’s top two gold-consuming countries, gold jewelry purchases by volume fell 31% and 18%, respectively, in the third quarter compared to the same period a year ago, according to the World Gold Council.

“The record gold price environment was the primary reason for the decline, simply due to affordability,” wrote the council in a report last week.

Even India’s traditional gold-buying Diwali season, which recently ended, did little to lift jewelry demand.

Titan, one of India’s largest jewelry retailers, said in an early October filing that fewer customers shopped for jewelry in July through September. But sales revenue rose 19% from a year ago, lifted by higher average ticket sizes as surging gold prices pushed up spending per purchase.

The company said it made “significant investments” in marketing and promotional initiatives to boost demand. It also introduced 9-karat gold jewelry earlier this year, a lower-priced alternative aimed at value-conscious buyers.

Big global jewelers aren’t spared, either

Even Pandora, Denmark’s jewelry behemoth, isn’t immune to industry turbulence. In its second-quarter results, Pandora said higher gold and silver prices shaved 80 basis points off margins from a year earlier, prompting price hikes to offset the pressure.

But the precious metals rally has gotten so intense that the company broached the topic of using alternative materials during its earnings call — a delicate issue for a brand built on gold and silver.

“I can knock out stainless-steel jewelry if I want to,” CEO Alexander Lacik said during the August earnings call. “But what I need to understand is what does that do to people’s perception of the brand, because that’s a really strategic assessment.”

As companies recalibrate for higher costs, some jewelers say they hope that a softer gold price will steady demand heading into the winter holidays.

“With year-end employee bonuses coming, I think we still see a strong demand, especially towards the festive gifting season,” Yuan said.