How the Jewelry Industry Impacts Precious Metal Markets

In addition to gold and silver, both platinum and palladium have been accepted as metals suitable for the jewelry trade in much of the world. However, the use of gold as a decorative store of wealth is a well-entrenched custom in many areas of the world that have significant economic impact on all the precious metal markets.

Gold is, of course the most commonly traded metal on the world-wide jewelry trade. In North America is is usually alloyed with a significant amount of another metal, such as silver or copper, to produce a durable product for a relatively low price. For purposes of precious metal investing, jewelry in gold, platinum and silver are most desirable at high purity. Platinum and silver are both easy to handle without scratch losses than the ultra-soft, 99.99% pure gold.

Of the 2,400 tonnes produced annually (with world production numbers falling since “peak gold” in 2000), nearly 2,700 tonnes of gold is used in the production of jewelry, alone. Add to that the relatively large number of people who purchase precious metals as rounds or arguably less decorative precious metals bullion. As the international importation of gold to be used for jewelry has dramatically dropped off in 2009, the demand from investors has filled in a massive gap with slight gains in demand over that time.

Platinum has been used as an investment since Egyptian times, but more recently, was made into jewelry on a mass scale in the late 18th and early 19th century. Though few examples exist, they are highly prized by collectors at prices far in excess of their melt value. Many times more rare than gold, platinum has been trading just above the spot price of gold since 2008. While the price has been recovering from the drop-off in industrial uses such as new automobiles, the price is more dependent than ever upon the actions of investors. The market for platinum, like silver, has fewer players. This makes both platinum and silver, still generally safe long-term investments, a bit more turbulent.

Many brides planning on 2009 weddings reported at the beginning of the year that they intended to spend less overall on their weddings, but increased the portion of the money spent on durable goods, such as jewelry. In fact, 81% of brides favored platinum jewelry. Another advantage to using gold, platinum, palladium or silver jewelry for precious metal investing is its value outside the commodity market.

Aesthetic appeal is important with precious metals. Silver, gold and platinum jewelry that's just ugly is always the first to go into the melting pot when times are tough. Therefore, choosing pieces that have a timeless style and are aesthetically pleasing make them a more sound investment. The odds are that much greater that you'll actually hold on to the pieces long enough to be profitable. When investing, you need to do your homework and really understand which pieces will have an additional aesthetic or historic value.

There is a finite amount of gold that consumers are willing to part with at any price, so the domestic stocks of gold for jewelry production will dry up in non-production countries first. An increased commodity price for precious metal investing and speculative purchase of mining company stock should encourage world production to continue at a very slowly declining or slightly increasing levels.

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Arthur McGuire

March 17, 2009