By Gareth Vaughan
Jeweller Michael Hill International is warning that as the price of gold continues rising, the price of gold jewellery is likely to follow suit.
Mike Parsell, Michael Hill International’s chief executive, told interest.co.nz the company was keeping a close eye on the impact of the surging gold price on its margins.
“We’re like anyone,” Parsell said.
“At some point, if the gold price continues to rise we’ll potentially have to re-price our products.”
“But all our competition would be in the same position so it just means, with some of the products, we’d have to lift the retail prices a little."
Both gold for immediate delivery and gold futures have hit record highs this week as the precious metal continues its strongest rally since at least 1920. Gold futures for December delivery hit US$1,347.70 in New York and gold for immediate delivery reached a record US$1,349.80.
The continued price rise comes amid reports that wealthy people are responding to economic worries by buying gold by the bar and, in some cases, by the ton.
Customers' not hoarding gold jewellery
However Parsell, who joined Michael Hill International in 1981 and has been chief executive since 2000, said it was unlikely the jeweller’s customers’ were looking to buy jewellery to enable them to hoard gold.
“I think if people are hoarding gold to hedge or to have some sort of form of investment out of the actual money markets, then they would buy bullion or bullion futures,” said Parsell.
“They wouldn’t do it with made up jewellery.”
He suggested moves to build up gold holdings, including from some central banks, were “emotional.”
“The world’s uncertain in terms of what’s going on,” Parsell said. “The US economy still doesn’t inspire a lot of confidence.”
The jewellery industry remained by far the biggest consumer of gold production.
“So when prices get to a point where consumers stop buying, you generally find then that gold prices will fall to stimulate demand again,” said Parsell.
“At the moment we don’t see any slowdown in terms of people’s appetite for buying plain gold jewellery.”
Meanwhile, Parsell said Michael Hill International wouldn’t be revaluing its gold stock up because it didn’t revalue existing stock. As of June 30, the company had finished goods inventory, including gold and other jewellery, worth NZ$133.9 million, raw materials worth NZ$9.4 million and display materials worth NZ$5.6 million.
Parsell said sourcing gold wasn’t be a problem because there was no shortage of it. And although the price was rising, the Queensland headquartered company had been able to offset this to some extent due to the strength of the Australian dollar against the US greenback.
Strong sales growth
Michael Hill international yesterday released its first quarter sales figures for the three months to September. They showed total same store sales up 13.9% to NZ$93.6 million with New Zealand same store sales up 19% to NZ$20.7 million and Australian same store sales up 11.5% to NZ$63.29 million. Founded by Michael Hill, who opened his first shop in Whangarei in 1979, the company now has 232 stores across New Zealand, Australia, Canada and the United States.
Parsell said although the company was "obviously pleased" with the first quarter, no one was celebrating yet. The group usually makes more than one-third of its sales in the December quarter, which provides a "very large percentage" of the annual bottom line.
"It looks encouraging, the first quarter, but things can change pretty quickly, particularly in the current environment," said Parsell. "For us the whole game’s played in the second quarter really."
There had been no evidence of a pre-GST hike splurge from shoppers with sales in New Zealand strong across all three months of the quarter. GST was increased to 15% from 12.5% on October 1.
Precious metals
Select chart tabs
* This article was first published in our email for paid subscribers earlier today. See here for more details and to subscribe.
9 Comments
Now, now! Michael isn't Gerald Ratner ..."How can you sell this for such a low price?", I say, "because it's total crap". I particulaly liked ...(After the speech, the value of the Ratners' group plummeted by around £500 million, which very nearly resulted in the firm's collapse)
Thanks for that Gareth - but as someone else has pointed out - 10ct is still tat - and still way below 50% gold content.
As an anecdote - I was in the UK recently and noted the proliferation of shops on the high street buying/selling gold - some of these outfits seemed to be doing a bit of pawnbroking which is a return to an old trade. Whilst there I bought Mrs h something in gold - the jeweller informed me that prices were about to go up 7% later that week (having already reportedly gone up twice already this year). At least some of the latter is down to the weakness of the pound.
1 carat of gold = 1000/24. So 9 carat is 37.5% gold.
Divide the carat of gold you have by 24 and the result is the percentage.
10k 10/24 41.67%
14k 14/24 58.33%
18k 18/24 75.00%
24k 24/24 99.99%
The remaining percentage of the metals are based on the type of gold you have:
Yellow Gold - Copper, Silver
White Gold - Nickel, Zinc, Copper
Green Gold - Silver, Zinc, Copper
Rose Gold - Copper, Silver
In our own case: Gilding or gilt doesn’t necessary mean gold plated. It describes the process, but not the material. In Australasia most items such as picture/ mirror frames or used on paintings etc. are “gilt” in “Schlagmetal” a bras- leaf. Only a few professional gilders are using genuine 12 – 22 carat gold- leaf.
At the Mowbray International Coin auction in Wellington yesterday the 91 gold coins on offer went for record prices.
Sovereigns were fetching well over $400 and there was a 17.25% buyer premium added to that which took them to over $469 per sovereign. Lots sold over $500.
Plenty of postal bids and phone bids. Not a lot passed in either.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.