After a yr of hovering gold costs, makers of luxurious watches have been left with a heavy treasured metallic headache. The place a yr in the past procurement groups had been shopping for gold at about $2,300 an oz, now the determine is round $3,300 an oz, a 40 per cent enhance. With inventory markets nonetheless risky, few analysts are forecasting a correction.
Luxurious watch firms are reliant on gross sales of gold watches. In accordance with the Federation of the Swiss Watch Trade, final yr watches made in treasured metals, together with supplies comparable to platinum, accounted for nearly 40 per cent of whole Swiss watch exports by worth however solely 2.7 per cent by quantity.
Many manufacturers have handed prices on to customers. Rolex, the Swiss watch business’s largest watchmaker, elevated the costs of its gold watches by 8 per cent at first of this yr, following two worth will increase in 2024. A second enhance is predicted subsequent month.
Others have made swingeing cuts to their inventories, withdrawing a whole bunch of gold fashions from the market. In accordance with information gathered by Geneva-based advertising company Digital Luxurious Group, within the first three weeks of April, the typical worth of a Cartier watch accessible on the model’s US web site fell 30.4 per cent, following a 63.8 per cent stock discount, as greater priced gold watches had been withdrawn.
DLG additionally noticed that worth will increase since US President Donald Trump’s tariff bulletins in early April grew to become extra pronounced, peaking at a 17.5 per cent worth rise for watches over $100,000. Rose gold watches had been affected most sharply, with costs rising 23.5 per cent in opposition to a list drop of 16.4 per cent, marking a dramatic shift in steadiness.
Smaller manufacturers try to maintain up. “We’re utilizing the gold we purchased final yr now, however we’re not reordering except it’s important,” says Edouard Meylan, chief govt of impartial Swiss watchmaker H Moser & Cie, noting that demand for rose gold watches stays excessive and that “over the previous few weeks we bought lots of gold watches to individuals wanting to speculate”.
Whereas its figures don’t embody watches, the World Gold Council says demand for gold from the jewelry sector fell from 538.5 tonnes within the first quarter of 2024 to 434 tonnes in the identical interval this yr. Total international demand elevated 1 per cent yr on yr, pushed by an uptick in gold funding of 170 per cent.
“I’m cancelling all of the gold that isn’t 100 per cent crucial as a result of I don’t know how you can worth it and since in the intervening time gold watches carry the best danger with the least margin,” Meylan says. “I’m specializing in metal and ceramic.”
For others, the one choice is to maintain rising costs. “We elevated costs on the finish of final yr and all of us have to extend costs once more,” says Romain Marietta, chief merchandise officer at Zenith, certainly one of LVMH’s Swiss luxurious watchmakers.
For each Moser and Zenith, gold watches account for round 20 per cent of annual volumes, however 30-35 per cent of gross sales. “The value of white gold specifically has change into too excessive for serial manufacturing merchandise, and now even for restricted editions,” says Marietta. “You find yourself with a retail worth that isn’t aggressive with the key manufacturers producing gold watches in quantity.”
Luca Solca, a senior analyst at analysis firm Bernstein masking international luxurious items, expects rising gold costs to create clear winners and losers. “Probably the most fascinating manufacturers will be capable to plough by way of this — Rolex, for instance,” he says. “Decrease manufacturers within the client pecking order should regulate to decrease volumes. ‘Rightsizing’ can be the secret — that’s, slicing prices and lowering capability.”
Beforehand, it had been thought consumers of high-ticket luxurious gadgets had been much less worth delicate than consumers of entry-level merchandise however, in line with Marietta, there are indicators that has modified. “We thought the upper section could be untouched and the actual diehard collectors that may afford these watches wouldn’t be worth delicate,” he says. “However now we have to rethink and take note of worth sensitivity.”
Marietta says Zenith has turned its consideration to growing fashions in metals comparable to platinum and tantalum, each of that are rarer and tougher to machine than gold and would possibly supply higher margins. The model’s major launch this spring was the GFJ Calibre 135, a 160-piece limited-edition watch in platinum that on an optionally available platinum bracelet carries a price ticket of just about $100,000.
In accordance with Oliver Müller, founding father of Swiss luxurious consultancy LuxeConsult, the fee implications for manufacturers are much more extreme than they first seem as a result of a gold watch case is machined from a gold bar weighing 5 occasions the end-product. Scraps retain their worth and could be recycled, however the upfront outlay is punitive. “Manufacturers must compensate not only for rising uncooked materials costs, but additionally rising monetary prices,” he says. “This has a big impression on money circulation.”
As gold costs enhance, some retailers say demand for gold watches exhibits no indicators of slowing. “In our market, we discover demand for treasured metallic watches comparatively inelastic,” says Mohammed Seddiqi, chief govt of Ahmed Seddiqi, the most important watch and jewelry retailer within the UAE. “Purchasers who’re eager collectors and aficionados proceed to amass gold timepieces.”
Whereas some makers have mentioned they are going to cut back volumes of gold watches, Seddiqi says he expects manufacturers will fulfil his orders. “We stay sure that the availability will stay constant based mostly on the demand for watches,” he says. “At the moment, now we have a daily inflow of watches with common shipments being fulfilled.”
Analysts recommend manufacturers might want to concentrate on innovating round different, and even new, treasured metals. “One resolution could be to keep away from treasured metals and focus on different supplies,” says Müller. “Richard Mille is the epitome of leveraging plastic to the worth of gold. However you then danger shedding market share on the excessive finish, which continues to be the strongest market section. Alternatively, you cut back the quantity of gold in your watches by, for instance, extruding parts. This is able to assist alleviate the money circulation burden.”
Meylan forecasts some important materials shifts. “White gold will die as a result of metal is cheaper and extra trendy, whereas we could have to interchange gold with supplies comparable to palladium and tantalum,” he says. “In time, gold watches could change into as costly as platinum watches as shortage will increase.”
However working with various metals could not lower it. “From our expertise, shoppers seeking to purchase a gold watch will all the time buy a gold watch no matter if there are platinum, palladium or tantalum variations,” says Seddiqi. “Their decision-making isn’t normally pushed by various choices.”
One other impact of rising gold costs might be a spike in pre-owned costs as consumers look to make the most of a dip out there that, in line with Morgan Stanley, has skilled 12 consecutive quarters of decline. However Charles Tian, founding father of the WatchCharts pre-owned market tracker and co-author of Morgan Stanley’s quarterly market studies, says the secondary market has but to expertise any important shifts as a result of rising worth of gold. “The primary motive for that is merely that the worth of the gold within the watch isn’t substantial sufficient relative to its general market worth. Even with gold being up 40 per cent up to now yr, this most certainly interprets to not more than a 10-15 per cent enhance relative to a watch’s general worth.”
He notes that gold watches, particularly Rolex fashions, have outperformed metal fashions over the previous 5 years, rising at median values by 32.3 per cent, in contrast with 26.4 per cent for metal. Even so, he provides, the cooling within the secondary market over the previous three years because the pandemic-induced watch funding rush that despatched costs rocketing means consumers should not zeroing in on the class at this time.
