By: Afshin Yaghtin

Gold has soared recently to levels not seen since the 1980s. From $430 per ounce in April 2005 to approx. $550 an ounce towards 2005 years' end, to the much anticipated $600 per ounce in April 2006.

Many analysts expect a rise in raw gold to $800 per ounce within the next 1-2 years, and some have even ventured as far as predicting gold to reach $1,000 or more per ounce within the next 2-3 years.

Both wholesale and retail jewelry prices are on the rise, as gold jewelry retailers update their prices to reflect this great increase. The question is, how soon and how hard will higher gold prices hit the jewelry consumer?

This will greatly depend on the type of jewelry store and how quickly they have systems in place to change their jewelry prices. A change in gold from $550 an ounce to $600 will not dramatically change things in the retail world.

But for a discount jeweler who charges by the gram, a different of $50 per ounce can make a decent difference. This will translate to almost $1.50 per gram for 14k gold. A gold chain weighing 20.0 grams for example will now cost the retailer an additional $30.00 to purchase. And this is assuming that the same jeweler does not mark-up this new increase to say, $45 instead of $30! Retailers who base their prices on keystone pricing, for example (doubling the price that they pay to their supplier), can be expected to see a $60 rise on that same chain, instead of $30, if they maintain keystone pricing. Some jewelers even charge double or triple keystone (marking up a piece of jewelry 2 to 3 times its wholesale value).

This translates to an approx. 10% increase in the cost of raw gold, and therefore a minimum of 10% for finished retail jewelry. Assuming keystone pricing, this could translate to a 20% increase in finished jewelry, when gold changes from $550 per ounce (December 2005), to $600 per ounce (April 2006).

If gold were to reach $800 per ounce, the consumer could expect an additional 33.3% increase in the price of raw gold, assuming a price shift from $600 per ounce to $800, or a 45% increase in the price of raw gold if assuming a price shift from $550 per ounce to $800 per ounce. This could mean a price increase in the retail jewelry world of anywhere from 33.3% if no additional mark up is made by jewelers on the increase in the price of gold, or an over 65% increase in retail jewelry if jewelers maintain keystone pricing (which is a standard minimum for most traditional, brick and mortar and some online jewelry retailers).

How will this effect online jewelers?

Online jewelers are often selling their gold jewelry at discount prices, and so this price shift will be played out differently for online merchants.

Although online jewelers will feel a price increase from their suppliers, many do not charge keystone pricing, and so the price shifts may not be as dramatic as they will be at brick and mortar jewelry stores. Most online jewelers also do not have to contend with stocking merchandise and so they will not have to anticipate the realities of rising costs into their current pricing structures. Traditional jewelry stores may have to sell their gold jewelry at a slight premium in order to anticipate rising gold costs in the near future, in order to cover themselves when restocking items. This will much depend on how traditional jewelry stores choose to face the challenge of rising gold prices.