Managing Extreme Uncertainty
Part I: Volatility in the Gold and Diamond Markets
One day increasing the next day decreasing, jewelry storeowners are facing a level of economic volatility and commodity uncertainty never experienced in the last six decades. Not since the period between the Great Depression and the end of the Second World War, an interval of 15 years, have jewelry storeowners had to deal with such a degree of change in the economy and never before in the context of the vitriol permeating the country’s social and political institutions. This issue of Retail Jewelry Insights is a 2-Part Series. Part I will focus on (a) the volatility in the gold and diamond markets; and Part II on (b) the uncertainty in the economy.
Will Gold Prices Continue to Increase?
Is the price of gold another asset bubble about to bust? That is the conclusion of an August 15, Wells Fargo bank report as reported by the JCK on August 24. Then, with gold declining from an August 22 after-hours trading of $1,908 to $1,762, the report may seem prophetic. However, if true, it begs the question, why the purported gold bubble did not collapse in 2008 along with all the other asset classes that were driven to record low values during the 18-month recession.
The answer may lay in the fact that the pre-recession period between 2001 and December 2007 represented what appeared to be a near endless time of escalating asset prices where it did not seem to matter that prices were irrationally high. It only mattered that those assets could be resold for an even more irrational price at a later date, the classic definition of an asset bubble. However, that was not the case for the price of gold.
