Q&A: What effect is the rise in the price of gold having on watches?

The relentless price rise of gold has had an effect on almost all links in the chain of production for watches.

Those who are disproportionately reliant on the precious metal in their manufacturing process are obviously more exposed, but the question is when, and to what extent, the end consumer will really feel the price at the pump.

Watch Insider spoke with Simon Lazarus, head of content & PR for pre-owned watch platform Chrono Hunter, to find out more.

Watch Insider: Are brands readjusting prices for gold models?

Simon Lazarus: Absolutely. To reflect the surging price of gold, brands like Rolex and Patek have had to get with the times  and roll with the punches. This is due to record-high raw material costs. As with the recent Rolex price increase, precious metals have seen more of a price hike compared to their stainless steel counterparts. Many of Rolex’s gold models saw a near 9% increase, while Audemars Piguet has shot up on gold timepieces by more than 5%.

WI: Is the hype around the price of gold making gold models more or less desirable for consumers? 

SL: It’s a double-edged sword. It is both a commodity that’s traded on all major stock markets and a precious metal to manufacture gold watches with. Highly sought after, some of the most complicated watches globally are composed of this material. Ultimately, it is volatile and the value can go up as well as down. Regardless, it is about desirability and rarity of the watch that drives factors, but the price of gold currently will take its toll on some consumers who may be priced out.

WI: Has the price of gold led to an increase in pawning or scrapping gold models?

SL: What we have noticed through our platform is that some of our network of retailers have shifted somewhat, and are more willing to buy less popular watches. They are now more inclined to examine the scrap value of gold over the value of the actual watch. In addition, we have seen more sellers come to market with gold watches from different brands, rather than the usual suspects, such as Rolex, Patek Philippe, Audemars Piguet, and Cartier. Before, they were not interested in purchasing [secondary brands] due to low desirability, but the position with a few has changed slightly if it’s a solid-gold timepiece, more for scrap value rather than reselling.

WI: Are watchmakers likely to reduce the output of gold models due to the price? Or switch to alternative precious metals?

SL: It’s not to do with output, rather more to do with reaction to the markets and price of raw materials. Watchmakers are responding to record-high gold prices by raising the retail prices of gold models, as reflected in price increases from major players like Rolex and Audemars Piguet, rather than significantly reducing output. While margins are under pressure, luxury brands are navigating the crisis by increasing retail prices, utilising alternative high-tech materials, or shifting to alternative precious metals like platinum. Many are bracing themselves for a margin adjustment, as seen by Breitling’s recent overvaluation.

WI: Will this have an impact on the resale market?

SL: Gold prices play an integral part in not only watchmaking but long-term resale value. Gold may be prone to socio-economic factors, but desirable watches will always stand the test of time. This is what we have noticed as experts in the secondary market where hot watches — like the Rolex Daytona, the Patek Philippe Nautilus, and the Audemars Piguet Royal Oak — still have overwhelming demand and little supply.