The Real Cost Of Gold

What has got into the mystic spirit of gold? Ever since January of 2000, its price has been riding an uphill trend, sending retail jewelers in a continuous frenzy to adjust prices. Finally this week, the precious metal price reached an all-time high, but gold merchants might be in line for a hard hit.

According to MarketWatch, gold reached a new record high of $991.00 an ounce due to a weakening of the US dollar. The impact will be felt from cocktail parties to weddings, where gold fashion has been second to none for decades. For specialty retailers, gold-engagement, wedding, and anniversary rings comprise close to 35 percent of the market.

In fact, it has been a difficult time for gold jewelers since the price of gold began its upward swing, specially the last two years. Now, gold is turning quite expensive and, along with a slowing economy, it is forcing habitual customers to hold onto their wallets and to stay away from jewelry businesses.

This could seriously hurt the $25 billion a year industry, specially Wal-Mart, the largest jewelry retailer, and the 50 main chains like Zale, Tiffany, and Sterling, which claim close to half of the jewelry U.S. market. Zale Corp., one of the most important retailers, announced the closing of more than 100 stores and a 20 percent cut in their headquarters staff in Dallas. TX. for this year to stay afloat, and create "a culture of cost discipline and financial rigour," said Neal Goldberg, Zale's new chief executive.

One of the main reasons is that people are just not buying gold as they used to since it is not a basic necessity: some are turning to replacement gifts; families in tighter budgets are selling their jewelry items; and those with a large investment in gold are constantly re-evaluating their insured value.

Many are asking themselves if the soaring prices of gold should be an indicator to include or increase gold in their stock portfolio. The answer should be carefully considered, since there are several factors affecting gold price. Besides, the new world record price of $991.00 is based on US dollars, a number with an annual inflation factor according to the early 1980s adjusted U.S. Consumer Price Index (CPI), hiding an actual price a few thousands dollars higher.

On the other hand, there is a strong possibility we have not seen the end of this dramatic increase, which, according to experts could reach anywhere from $2,000 to $5000 an ounce by 2010, in U.S. CPI adjusted dollars.