Worth its weight: Is a weak Canadian dollar good for gold sales?

by charlene_voisin | May 1, 2015 9:00 am

By Jacquie De Almeida

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Gold prices have dropped in the last few years, raising cheers of hallelujah among retailers and manufacturers, but a weakening Canadian dollar may have some saying their prayers for a good year.

According to Thomson Reuters GFMS, the price of gold is slated to stay flat for 2015, averaging around $1230 US per ounce and ranging anywhere from $1050 to $1340. Compared to the record highs of the last few years, including topping $1900 in 2011, these prices are not all together scary.

Factor in a weak Canadian dollar, though, and gains are not as big as they could be. But is that reason to fret?

Sunshine on the horizon

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Freydi Neuwirth, vice-president of manufacturing and marketing for Atlantic Engraving, notes the low Canadian dollar is a good thing.

“We need to buy [gold] as we always have,” says Neuwirth, referring to the trade. “Stock and merchandise is needed in order to sell to the consumer, so purchasing is necessary regardless, even with a low Canadian dollar. The real question is, how we can sell our gold?”

One possibility, she says, is an influx of American shoppers and tourists who now enjoy a tremendous exchange rate in their favour. “When people are on vacation, they tend to purchase and their decision is not based on price,” she adds.

Thelma Chuakay, managing director of Umicore Precious Metals Canada, points out that even with a weak Canadian dollar, jewellers are still paying less for gold than they did when it cost $1900 per ounce and our dollar was at par with the U.S. greenback. At the time of this article’s writing, gold cost $1157 US per ounce, or $1475 at the day’s exchange rate.

Exporters really have an opportunity to do well, she points out, as their products will be more competitive in comparison to American goods.

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“On the retail side, if they don’t want the volatility, they should look at their inventory and see what is moving and what’s not, and decide whether to refine it, recycle it, or put it in a pool account or a consignment account with a refiner.”

Atef Salama, vice-president of Express Gold Refining in Toronto, says retailers usually have a sufficient margin to absorb the price of the metal fluctuating.

“And if they don’t, they have to consider increasing their margins, looking at predictions for the Canadian dollar, and working that into their baseline price for product,” Salama says.

“The retail world has been struggling, but I see it picking up a bit as the price of gold comes down in relation to the Canadian dollar. I can see it benefiting Canadian companies that export to the United States because the dollar has been so strong in the last few years. For importers dealing in quantities, they should look at hedging as a tool to control price fluctuations. But this is an issue for the whole Canadian economy, not just the jewellery industry”¦ People should know we’re all in the same boat. It’s affecting everybody and everyone should adjust accordingly.”

Manoeuvring margins

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Importers like Toronto-based European Design, which pays for a fair portion of its products in U.S. dollars, are definitely feeling the pinch.

“Margins are tighter now, of course, because you don’t want to drastically raise your prices,” says Daniel Kundakci. “But for some inventory, you can’t justify not doing that because you would be operating at a loss. It is tough. Even though customers understand the U.S. dollar is higher, they can’t grasp the fact something they bought a few months ago costs much more today. It’s tough to balance. You try to keep prices as low as you can, but you obviously have to consider higher operating expenses.”

At the consumer level, however, Kundakci says a weaker Canadian dollar may be a deciding factor for those looking to purchase from U.S. e-tailers. “When the dollar was par, the downside was there was a lot of buying online or cross border. The plus of a weaker dollar is that it may move consumers away from doing that.”

Apel Camgozlu of Mary Jewellery in Toronto says that even though gold costs less these days, the price is still too high to be able to justify higher volume of sales to retail clients. Like European Design, Mary Jewellery has also had to raise its prices.

“Every company has to survive on a certain profit margin in order to stay in business,” Camgozlu explains. “If you’re not making that amount of profit on the products you sell, you’re going to lose at the end of the day. You have to pass it on to your customers, and hopefully, they pass it on to theirs, so that everybody makes money.”

Camgozlu says the sudden 20 per cent increase in the exchange rate forced Mary Jewellery to re-work the sales structure it developed last fall. “Most of our clients are business people, and they buy gold and import it themselves, so they understand currency fluctuations,” he adds.

The effects of the poor currency exchange are most apparent in gift-giving sales, Camgozlu says. Consumers may be willing to spend $300 or $400 on themselves, but are less inclined to do the same when buying a gift.

An inverse effect

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Kenneth Laughlin, sales executive for United Precious Metal Refining for the Canadian market, says it’s not all bad news for retailers.

“When the price of gold decreases, it helps them sell jewellery, but when it increases, it helps them with buying gold from consumers,” he adds.

Kamel Hanna, owner of refiner and gold dealer, 24 Gold Group, agrees with Laughlin, adding he’s noticed a drop in retailers bringing in gold they’ve purchased from their clients to be refined. Although he says times are tough in the Canadian jewellery scene, he adds businesses offering a wider selection of product appear to be doing better when trying to capture consumers’ interest.

With the Vegas shows upon us, the Canadian jewellery industry may be looking to embrace a cautious attitude when it comes to stocking up. However, awareness about lower gold prices may entice consumers to buy more of the yellow metal than in previous years. How will the Canadian economy affect buying trends at JCK Las Vegas and Couture? We’ll have the answers in the August issue.

Source URL: https://www.jewellerybusiness.com/features/worth-its-weight-is-a-weak-canadian-dollar-good-for-gold-sales/

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