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Appreciating gold
By Ryan Harrison
April 2012
Soaring gold prices has done little to depress optimism among watch makers and jewellers, says Ryan Harrison.
Last September's record of $1,920.30 could be breached, according to several experts, including some at UBS, Morgan Stanley and Societe Generale.
In 2001, the price of gold averaged just $270.
Each year, shoppers in the Gulf are told to buy sooner rather than later if they're to capitalise on this fastappreciating asset.
A Reuters poll of 45 analysts in January suggested gold is likely to remain a safe haven for most investors in 2012. It seems any news that the precious metal could strengthen bodes well for sales in the luxury jewellery segment. For one, it takes out the major risk factor for most people buying gold.
But consumers could be scared off by soaring prices, says Gerhard Schubert, head of precious metals at Emirates NBD.
"There's likely to be a softening of demand as the headline figures rise this year."
There's an argument that consumers of ultra-high-end luxury don't look at price tags anyway. One Swiss watch brand manager based in the Gulf, who preferred not to be named, says: "The rising price of gold and precious metals doesn't affect us. And our clients don't look at prices in the same way that those of access brands do."
It appears the enormous profit margins cancel out any fluctuations in raw material costs.
For others, gold represents only a small component of the product's appeal. George Béchara, regional brand director at Zenith Watches, says: "The demand for gold watches is still high. For us, the price of the material represents about 25 per cent of the final price of the watch.
"We are engine builders and designers before building the aesthetic of the watch, so the real value of our watches is in the movement itself. So, until now, we haven't faced these kind of gold-related problems," he adds.
Gulf gold consumption pales in comparison to China, which is expected to overtake India this year as the world's top consumer. The record-high price depressed buying interest in India by 44 per cent in the last quarter of 2011, according to the World Gold Council.
Luckily for watch and jeweller makers in the Gulf, Indian expats are not unlikely to lose their appetite overnight when shopping at GCC's gold souks. Their cultural attachment to gold won't let them.
Analysts can predict little else other than uncertainty for the global economy in 2012. This will surely underline the case for seeking safety in gold. For luxury brands, strong demand in the Gulf this year could balance out troubled waters in the west.© Gulf Marketing Review 2012
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