Michael Hill says surging gold price could push jewellery prices up, sees no evidence of people hoarding gold jewellery

By Gareth Vaughan

Jeweller Michael Hill International is warning that as the price of gold continues rising, the price of gold jewellery is likely to follow suit.

Mike Parsell, Michael Hill International’s chief executive, told interest.co.nz the company was keeping a close eye on the impact of the surging gold price on its margins.

“We’re like anyone,” Parsell said.

“At some point, if the gold price continues to rise we’ll potentially have to re-price our products.”

“But all our competition would be in the same position so it just means, with some of the products, we’d have to lift the retail prices a little."

Both gold for immediate delivery and gold futures have hit record highs this week as the precious metal continues its strongest rally since at least 1920. Gold futures for December delivery hit US$1,347.70 in New York and gold for immediate delivery reached a record US$1,349.80.

The continued price rise comes amid reports that wealthy people are responding to economic worries by buying gold by the bar and, in some cases, by the ton.

Customers' not hoarding gold jewellery

However Parsell, who joined Michael Hill International in 1981 and has been chief executive since 2000, said it was unlikely the jeweller’s customers’ were looking to buy jewellery to enable them to hoard gold.

“I think if people are hoarding gold to hedge or to have some sort of form of investment out of the actual money markets, then they would buy bullion or bullion futures,” said Parsell.

“They wouldn’t do it with made up jewellery.”

He suggested moves to build up gold holdings, including from some central banks, were “emotional.”

“The world’s uncertain in terms of what’s going on,” Parsell said. “The US economy still doesn’t inspire a lot of confidence.”

The jewellery industry remained by far the biggest consumer of gold production.

“So when prices get to a point where consumers stop buying, you generally find then that gold prices will fall to stimulate demand again,” said Parsell.

“At the moment we don’t see any slowdown in terms of people’s appetite for buying plain gold jewellery.”

Meanwhile, Parsell said Michael Hill International wouldn’t be revaluing its gold stock up because it didn’t revalue existing stock. As of June 30, the company had finished goods inventory, including gold and other jewellery, worth NZ$133.9 million, raw materials worth NZ$9.4 million and display materials worth NZ$5.6 million.

Parsell said sourcing gold wasn’t be a problem because there was no shortage of it. And although the price was rising, the Queensland headquartered company had been able to offset this to some extent due to the strength of the Australian dollar against the US greenback.

Strong sales growth

Michael Hill international yesterday released its first quarter sales figures for the three months to September. They showed total same store sales up 13.9% to NZ$93.6 million with New Zealand same store sales up 19% to NZ$20.7 million and Australian same store sales up 11.5% to NZ$63.29 million. Founded by Michael Hill, who opened his first shop in Whangarei in 1979, the company now has 232 stores across New Zealand, Australia, Canada and the United States.

Parsell said although the company was "obviously pleased" with the first quarter, no one was celebrating yet. The group usually makes more than one-third of its sales in the December quarter, which provides a "very large percentage" of the annual bottom line.

"It looks encouraging, the first quarter, but things can change pretty quickly, particularly in the current environment," said Parsell. "For us the whole game’s played in the second quarter really."

There had been no evidence of a pre-GST hike splurge from shoppers with sales in New Zealand strong across all three months of the quarter. GST was increased to 15% from 12.5% on October 1.

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