Gold Buybacks Mark Uncertain Times

“A bird in the hand is worth two in the bush”, a 15th century proverb meaning, “it is preferable to have a small but certain advantage than [the] mere potential of a greater one”, may well describe specialty jeweler’s current gold buyback practices. Certainly, since 2008, thousands of independent jewelers have been buying back consumer’s old gold jewelry at an increasing rate. Anecdotal information suggests that a third or more of jewelry companies have made up to 50% of their profits in recent years from buying back consumer’s old gold jewelry. If true, these windfall profits are certainly one example of ‘a bird in hand” marketing. However, one has to wonder about the “two in the bush”... did they get away? This issue of RJI is about whether buying back old gold costs jewelry companies core jewelry product sales, while making the future more uncertain.


History Is Unclear

Has buying back old gold cost jewelry companies core jewelry product sales, while making the future more uncertain? The answer is unclear, if history is the measure. Some writers have recently suggested jewelers successfully bought back consumer’s old gold when gold prices first ballooned in the 1980’s. That may be partially correct, but if true, the trend was short-lived, lasting only about nine months. Figure 1 illustrates gold price trends from May 1979 to December 31, 1980. More significantly, the era was uniquely different from today when gold was near the height in popularity as an accessory. As such, the period was accentuated by a gold buying frenzy rather than a gold selling craze, when consumers were strongly motivated to buy because they believed gold jewelry prices would be higher tomorrow. Indeed, many jewelers could not keep up with demand, when higher priced gold actually increased both unit sales and turnover.

Moreover, because gold prices more than tripled in a short period of time, many jewelers and manufacturers melted old, unproductive, and “toxic” inventory, often recovering more than book value...

Visit us at the JA Summer Show, NYC
July 24-26 2011
Booth #2862

Retail Jewelry Insights has a location at the JANY Show. You will be able to find us in  booth # 2862. We look forward to seeing you there; please also see below for details on our booth at the LUXURY PRIVÉ Show July 25-27.

Visit us at the LUXURY PRIVÉ  Show, NYC
July 25-27 2011
Booth #GF109

Retail Jewelry Insights has a location at the LUXURY PRIVÉ Show in the Pierre Hotel booth # GF109.  We look forward to seeing you there; please also see above for details on our booth at the JANY Show July 24-26 at the Javits Convention Center booth # 2862.

Visit us at JCK, Toronto
August 7 – 9, 2011
Booth #27

Retail Jewelry Insights has a location at the JCK Toronto Show. You’ll find us at JCK booth # 27. We look forward to also seeing you there.