The skyrocketing worth of gold has highlighted its standing as a protected haven, hitting one other document this week after greater than doubling in two years, and taking pictures effectively previous the historic threshold of $4,000 an oz to prime $4,600 an oz.
A boon for buyers, excessive gold costs pose a problem to luxurious watchmakers. Brands are steeling themselves for tough decisions as they rush to search out options.
“Rising gold prices have strongly impacted brands,” stated Oliver Müller, founder and CEO of Swiss consultancy LuxeConsult.
Already buffeted by punishing US tariffs, a weaker greenback and lackluster demand for timepieces in key US and Chinese markets, Müller stated excessive gold costs add additional pressure to labels’ money movement.
Some big-name manufacturers, together with Rolex, Patek Philippe and Omega have raised costs over the previous two years as they search to offset enter prices and tariffs unleashed by US President Donald Trump. Industry observers calculate the worth of a gold Rolex watch has gone up by virtually 20 per cent over the previous 12 months.
Most manufacturers have up to now swallowed the rising price of gold.
“You just have to deal with it,” stated Breitling CEO Georges Kern.
“It’s like with the tariffs: You cannot transfer the price onto the consumer,” Kern stated.
The rising price of residing has prompted many shoppers to carry again on luxurious purchases, particularly high-end watches, which additionally face competitors from related timepieces just like the Apple watch. Price hikes danger additional dampening demand, as seen by the struggles of luxurious style manufacturers to win again even rich shoppers after elevating costs in the course of the post-pandemic increase.
Richemont chairman Johann Rupert famously cautions in opposition to extreme worth hikes and has stated the method helps the Swiss conglomerate’s Cartier label, which has strongly outpaced rivals in current quarters.
Breitling’s Kern is bracing for decrease margins. “We just make less margin,” he stated.
Labels like unbiased watchmaker H. Moser & Cie. are placing gold purchases on maintain. The model has been drawing down shares bought over two years in the past.
“I didn’t want to buy gold at the new price and I was feeling it would go down a bit,” stated Edouard Meylan, H. Moser & Cie CEO. “I’m still waiting,” he added.
Lower margins for gold watches in comparison with metal watches limits the leeway for manufacturers, Meylan defined, noting that clients is likely to be prepared to pay 5 occasions the associated fee to provide a metal case — a lot lower than a gold case — however 5 occasions the higher-priced gold case dangers pushing the ultimate price ticket past attain.
The stamping course of for manufacturing watch instances requires manufacturers to buy as a lot as seven occasions the quantity of the ultimate product. This provides to up-front prices, cautioned trade guide Müller.
“To make 50 gold watches that use a total of 2.5 kilograms of material, you need to finance 17.5 kilograms,” Müller defined.
At present costs, a model making that quantity of watches must finance 1.2 million Swiss francs ($1.5 million) of working gold stock, prompting questions on whether or not it is smart to hold on with the excessive finish of a set and risking additional pressure to cash-flow.
For consumers, up to now hovering gold costs haven’t appeared to sway preferences.
“If people really want a gold watch, they know this is the price,” stated Brian Duffy, CEO Watches of Switzerland, of upper worth tags. The multi-brand watch retailer, which operates 196 showrooms within the United Kingdom and the United States generates over half of annual gross sales from Rolex and Patek Philippe.
“The threat from tariffs was greater — gold is an easy one to explain because people see it as further evidence of value appreciation,” stated Duffy.
However, not all labels can count on shoppers to completely abdomen rising gold costs.
“There are very few brands that have that pricing power,” stated Kern. “You need brand image to support that price,” he added, predicting fewer manufacturers will produce gold watches sooner or later.
Meanwhile, Kern is sticking to his objective to bulk up gross sales of gold watches at Breitling, which he goals to extend from 10 to fifteen % of annual gross sales.
Not all manufacturers are able to take the hit to margins.
Some could flip to casting, a course of that entails hollowing out elements.
“Increasing your manufacturing efficiency by optimising the volumes of the components is one way to bring down the weight and the cost of the component,” stated Müller.
But casting stays debated within the trade, elevating questions round high quality, sturdiness and craftsmanship, all central to buying selections.
“The watch industry has been very sensitive to this issue,” stated Müller.
Other strategies for lightening the burden of gold in watch merchandise are additionally being explored, however these can collide with luxurious ideas, too.
Swiss watch trade provider Gecoh-Regence lately launched “l’or allégé,” or “lightened” gold, weighing 60 % of stable gold and produced via a course of utilizing laminated strips of fabric and laser wielding.
The firm touts the approach as assembly necessities for form and aesthetics “without any alteration in perceived quality.”
Meylan is unconvinced. “You can save a lot of money, but is it luxury?” he requested, noting the approach tends for use by lower-end manufacturers.
Meylan has instructed his product group to develop watches in high-tech supplies like titanium and ceramic, or discover one thing new via innovation.
But there isn’t a substitute for gold in relation to watches, he conceded.
“Hardcore gold people want their gold watch and you cannot replace that with another material,” stated Meylan.
“You might have to go to a different customer,” Meylan added.
Müller is optimistic new supplies can spark purchaser curiosity, citing the success of Richard Mille, one among Switzerland’s prime 10 manufacturers, with annual gross sales topping 1.6 billion Swiss francs. The label sells ultra-lightweight watches product of titanium, ceramic and a carbon and gold leaf mix, recalling applied sciences developed for Formula 1 race vehicles.
“Some brands can sell non-precious materials for more money than precious ones,” stated Müller, citing Mille’s use of “strong narratives” to promote watches with new supplies.
Morgan Stanley and LuxeConsult estimate the model’s watches carry a median retail worth of round 270,000 Swiss francs — usually with out a hint of conventional treasured supplies or gems.
Meylan of H. Moser & Cie continues to attend for decrease gold costs earlier than shopping for extra. In the meantime, he stated he plans to convey new supplies to the annual Watches and Wonders truthful in Geneva in April.
The firm would possibly return to purchasing gold in 2027, “if we feel it’s necessary,” he stated.
As for the secondhand marketplace for watches, there was no signal of elevated demand or pricing, information from pre-owned watch market information platform WatchCharts confirmed.
“We haven’t seen any disproportionate uptick for gold watches in the past year,” WatchCharts founder and CEO Charles Tian advised The Business of Fashionnoting uncooked supplies prices aren’t the principle consideration for individuals shopping for secondhand watches.
“Brand equity, design and craftsmanship are more important,” stated Tian.