Gold Once More Above $1,100

The Wall Street Journal

LONDON--Spot gold climbed back above $1,100 a troy ounce on the last trading day of the year Thursday, getting help from a weaker dollar and rising crude oil prices.

Gold will finish the year on a steadier footing after its steep tumble earlier in December, having bounced 5% since bottoming at a seven-week low Dec. 22. Its recovery will bring gold to a gain of 26% for all of 2009.

Spot gold was trading at $1,103.95 an ounce, up 1% on the day. Gold's recent recovery since tumbling over 12% in the first weeks of December has been accompanied by a modest rebound in the euro against the dollar, and a steep rally in crude oil prices.

Its recovery will bring gold to a gain of 26% for all of 2009.

"I think the story of instability in the Middle East has pushed the price of oil higher, which translates to higher gold prices," said Afshin Nabavi, head of trading and physical sales at Swiss bullion trader MKS Finance.

While gold has regained a steadier footing, its direction at the start of 2010 will largely depend on whether or not the dollar will further strengthen.

But for the last trading day of the year, volumes will likely remain thin and volatility low.

"It's the last day of the year, I don't think a lot of people want to get fresh involvement," said Nabavi. At such a high price, now may actually be the time to trade gold for cash, rather than seeking gold as an investment.

In other precious metals, spot silver was 1.5% higher at $17.037 an ounce, spot platinum rose 0.6% to $1,460 an ounce and spot palladium was up 3% at $402 an ounce.

Palladium will end the year with the most upwards momentum. The metal has gained 15% since bottoming at a five-week low Dec. 22, the same day gold hit its bottom.

Diamond Miners Band Together To Lower Prices Of Rough-Cut Stones

Wall Street Journal

ANTWERP, Belgium— The world's top diamond miners plan to slowly increase output to tamp down prices of the rough gemstones. The cautious move aims to appease customers who have been squeezed by flat retail prices.

The delicate choreography comes even as the top four diamond producers fret that demographic and other changes threaten to permanently sap demand for the gems and create a long-term crisis for the industry.

Prices for rough, uncut rocks have risen more than 40% since February. Meanwhile, retail sales are falling, to $65 billion this year from $74 billion in 2008, RBC said.

"A lot of companies are going to be out" of business because of higher rough prices, said Eyal Atzmon, whose Antwerp-based company El-Ran polishes and trades diamonds.

As the financial crisis crushed the luxury-goods market, De Beers Group, Rio Tinto, BHP Billiton and Alrosa Co. slashed production this year. The four diamond miners control 90% of global production and influence prices through a Byzantine yet legal system of closed sales, secret long-term contracts and a few auctions.

De Beers, for example, slashed output by more than 90% in the first quarter.

And Alrosa sold all its production to the Russian state in the first half, rather then sell rough diamonds to its regular customers who cut and polish the stones for sale to consumers.

Global diamond-mine production is forecast to fall to $8 billion this year from $13.1 billion last year, according to Toronto-based RBC Capital Markets.

With manufacturers and polishers complaining of vanishing profit margins, the big four miners pledged Monday to ease their pain.

"We had to avoid a large-scale and catastrophic collapse of our industry," Sergey Oulin, vice president of Alrosa, said Monday at an industry conference in this port city, the center of the world diamond trade.

While the miners are loath to see prices for uncut diamonds drop too sharply, they are also worried that they might put some of their customers out of business if prices stay high.

"There is a consensus that rough prices have gone too high," said Des Kilalea, an RBC analyst. "But what everybody craves in this business is stability."

The miners plan to increase production gradually to avoid destabilizing the market. Alrosa holds more than $1 billion of diamonds, but won't sell it all at once, Mr. Oulin said.

Production "all depends on what demand will look like in the future," said Tim Dabson, a De Beers executive director.

Any increase poses risks for the miners. Short-term retail demand was hit by the global recession. But even as economic growth resumes, the industry faces other longer-term challenges, particularly in the U.S., which accounts for 40% of retail sales.

"We know people over 55 treasure diamonds…but that's not so clear for the iPod generation," Mr. Dabson said. "We need to tap into that market."Other risks include the tendency of consumers in the growing economies of India and China to favor less-expensive gems than what sell elsewhere.

The industry also is contending with what Mr. Dabson called "ethical consumerism," the linking of diamonds to war, corruption and environmental degradation. The industry participates in the Kimberley Process, an effort to ensure that diamonds traded internationally aren't used to finance rebel groups.

The industry needs protection for "when we're hit by a crisis like the 'Blood Diamond' movie," said BHP Billiton marketing director Chris Ryder, referring to the 2006 Leonardo Di Caprio film about diamond mining in war-torn Sierre Leone.

He also said the industry needs to mount general "demand defense." De Beers, the biggest diamond producer, has said it would reduce its advertising budget, worrying executives throughout the industry. The big miners have discussed a collaborative $200 million ad campaign, but have yet to commit.

Mr. Dabson drew applause, however, by playing a De Beers TV commercial for the U.S. that features a couple ice-skating on a frozen pond.

Retailers are worried as well. Zale Corp., which operates 1,930 retail jewelry locations across the U.S., Canada and Puerto Rico, reported a net loss of $189.5 million for the fiscal year ending July 31 and a 16.8% drop in revenue. "Diamond fashion has been extremely hard hit," David Sternblitz, vice president and treasurer of Zale, said, adding that demand for diamonds has decreased commensurate with overall jewelry demand on account of the recession.

But while most diamond retailers face what Zale CEO Neal Goldberg has called "the most difficult year in retailing in memory," other diamond sellers are doing well. Blue Nile Inc., one of the U.S.'s largest online diamond retailers, has remained profitable and gained market share at an accelerated pace in the recession, as customers turned to the Web for discounts, said CEO Diane Irvine.

The recession has also been advantageous for diamond sellers in the very upper echelons, where customers are investing in million-dollar diamonds as safe investment alternatives. "It's a refuge for your money if you have the cash available," Henri Barguirdjian, CEO of Graff USA, said, adding that his company, where the average sale is $150,000, was 20% ahead of last year's retail sales in the U.S. market.

Despite such exceptions, most diamond retailers are suffering, with some of the larger U.S. jewelers – such as Fortunoff and Finlay Enterprises Inc. – filing for bankruptcy this year. Even if economic growth resumes, other longer-term challenges face the diamond industry, executives in Antwerp said.

Gold Price Skirts $1,100

Wall Street Journal

Gold prices neared $1,100 in after-hours trading after the Federal Reserve's post-meeting statement suggested that U.S. interest rates won't be going up soon which keeps potential longer-term inflation a worry among traders.

The statement came out after the end of pit trading on the Comex division of the New York Mercantile Exchange, where the settlement price is set.

In pit trading, the nearby but lightly traded November futures firmed $2.40, or 0.2%, to settle at $1,086.70, a record settlement for a front-month contract. December gold rose $2.40 to $1,087.30 an ounce, a record settlement for the most-active month contract.

Then, about an hour after the Fed statement, in electronic trading after hours, gold for December delivery traded as high as $1,098.50 an ounce.

"The fact that everything remains the status quo is a positive environment for gold," said Dave Meger, director of metals trading at Vision Financial Markets.

There had been some worries that the Fed might change its rhetoric enough to be seen as signaling a hint of possibly tightening interest rates down the road.

"Any type of tilt to that effect could have supported the dollar and hence dented the gold price," Mr. Meger said. "Obviously that didn't happen. So any expectations to that effect are no longer a concern and that obviously gives a green light to the gold market to continue forward."

The Fed said conditions "are likely to warrant exceptionally low levels of the federal-funds rate for an extended period."

Continued low interest-rates mean further pressure on the dollar, especially since some nations have started raising rates, said Joe Foster, portfolio manager with Van Eck International Investors Gold Fund.

"Anything that is negative for the dollar is good for gold," he said. "Then there are the inflationary implications. The longer they maintain these historically easy monetary policies, the more that stokes potential for inflation somewhere down the road."

Gold had gained before the Fed statement on a second day of buying in the wake of news that the Reserve Bank of India has bought 200 metric tons of the metal from the International Monetary Fund who obviously know how to sell gold.

The news of the Indian purchases from the International Monetary Fund supported the market since it was seen as both reflecting strong central-bank demand and alleviating worries that the IMF's planned sale of 403.3 metric tons would hurt the market.

Central banks collectively had been net sellers of gold for more than a decade, said Fred Jheon, managing director of U.S. product development for ETF Securities.

Outlook Not Shining For Jewelers Anymore

Wall Street Journal

Foss Jewelry was honored by the Maine Legislature in September for reaching its 90th year in business. But like many jewelry retailers across the country, the family-owned store may have just celebrated its last birthday.

"We've talked to an accountant and we've decided to try to get through Christmas," says Anne Winter, manager of daily operations at the store, located in Livermore Falls, Maine. "At that point, we'll see if we will liquidate and close down."

The store only sold one diamond ring last holiday season, relying on sales of cheaper, sterling-silver pieces and other gift items to bolster profits. Then one of the town's paper mills shut down, laying off hundreds and crimping the town's economy. Some days, Ms. Winter says, she is lucky to make $20 selling watch batteries.

As younger generations become less interested in jewelry and as Americans gravitate to online shopping for convenience and bargains, Main Street jewelers and jewelry retailers are struggling to attract customers. The recession, which has spurred many consumers to think twice before making a luxury purchase, has added an extra burden, pushing many to shutter their doors.

According to a census by the Jewelers Board of Trade, the number of jewelry retail firms has declined more than 5% since September 2007, when the credit crunch started to take a firm hold on the economy. That's a net loss of 1,210 stores, primarily made up of mom-and-pop shops because the census tallies retailers by name, not by each store or kiosk location. This means that Foss Jewelry, as a standalone jewelry store, is counted the same as chains such as Zale Corp. and Kay Jewelers.

In 2007, sales for private jewelers were up more than 4%, according to Sageworks Inc., an economic-research firm in Raleigh, N.C. But in the last year, sales at those establishments are now registering a 4% decline. By comparison, sales dropped 2.3% at clothing stores and 3.3% at florists in the same period. Furniture stores, hard hit by the housing market, are enduring a 6% drop in sales.

"It's discretionary items that people stop buying when they are feeling insecure," says expert Drew White, chief financial officer at Sageworks and a credit analyst who researches market potential. "And there is lack of capital to finance inventory, which is another thing that is hitting private retailers."

Wise Jewelers, of Mount Vernon, Ohio, was shut down last February after 183 years in business. "It was difficult to compete with the chain stores and the Internet," says Brian McNamara, who owned the business for three years before closing it down. "For the most part, the service and repairs side of the business kept us going, but in the end, the economy did us in."

Some jewelers are staving off liquidation by implementing new business models. Carol Lipper, president of Designer Jewelry and Handbags, shut down her shop on the main thoroughfare of Millburn, N.J., in June because she couldn't afford rent. She laid off two employees, reduced her inventory and relocated to Livingston, N.J., where she is renting a small space inside Handcrafters, a store specializing in handmade gifts.

"I've seen downturns that affected expensive merchandise," says Ms. Lipper, whose products sell for $20 to $250. "But I've never seen anything like this, where the moderately expensive stuff is getting hit, too."

While it's been tough building a new clientele, Ms. Lipper thinks the model has potential. She is in negotiations to rent counter space at other stores and spas in the area to expand through satellite locations. She will also give the storefront presence another try: Just this week, Ms. Lipper signed a lease to rent a small boutique in Denville, N.J.—for 78% less than she was paying for her store in Millburn—and has hopes of opening by Thanksgiving.

In Ann Arbor, Mich., Craig Warburton also made a big change. His business, Austin and Warburton, hit $1 million in revenues in the mid-1990s and was growing steadily. His wife, Brenda Warburton, designed and created all the jewelry in the display cases, which attracted pedestrians in the downtown area. In 2008, seeing the consumer shift to online purchasing for engagement jewelry, the Warburtons launched AustinAndWarburton.com, a Web portal that allows customers to design and order custom jewelry, from birthstone necklaces to wedding rings and hibiscus jewelry.

The site took off and the couple decided to shut down the storefront last May—shedding several highly-compensated employees in the process—and move to a nearby office. For added convenience, the couple installed a video-conferencing system that allows customers to discuss and see 3-D models without leaving home. This year, Austin and Warburton should post record sales, Mr. Warburton says.

"We changed the size of the business to suit the size of the customer base," Mr. Warburton explains. "And we got a chance to rewrite the rules at a time when a lot of people are going out of business."

Making a Watch That Can't Be Counterfeited

There used to be easy tip-offs when a watch was fake, like light weight, shoddy artisanship -- and the fact that no working Rolex sells for $50. But these days, many fakes are so costly and carefully built that they require an expert to identify.

Now one Swiss watchmaker, Vacheron Constantin, has created a wristwatch that it says is impossible to counterfeit, as well as Men's Wedding Rings and Woman's Wedding Rings. What timing: The watch will be launched on Oct. 22 in New York, just as the luxury-watch industry is facing a possible global recession.

Do you care that many of the expensive-looking watches around us are probably not the real thing? Is the watch on your wrist real?

The watch, called the "Quai de l'Ile" for the watchmaker's historical Geneva address, uses layers of invisible UV marking, laser perforations of some watch parts, special high-security inks, and other measures used to secure passports and currencies like the euro and Swiss franc.

In the world of haute horlogerie, forged watches are as ubiquitous as fake handbags and black-market DVDs. These fakes are sold not only on sidewalk tables but also in stores, catalogs and Internet listings. The Swiss Customs Service has estimated that as many as 40 million counterfeit watches are put into circulation each year. Switzerland last year exported only about 26 million watches, so there's a fairly reasonable chance that the expensive-looking watch on your neighbor's wrist could be a fake.

Watchmakers have long fought counterfeiters by adding special stickers and limiting supply through authorized dealers. Rolex -- probably the most faked watch of all time -- strictly controls the numbers of its watches that can be sold by a dealer and requires that all repairs be made with authorized parts. Rolex also puts a green hologram sticker on the back of its watches -- though counterfeiters forge that, too.
Sophisticated Counterfeiters

But counterfeiters have been improving their technology faster than watchmakers. "Counterfeits have gotten more sophisticated," says David Hendry, chief underwriter for the Jewelry Insurance Brokerage of North America. "The counterfeiters have learned all the things that people didn't know 20 years ago." They add weight, use sapphire crystal for the glass of the watch and incorporate other elements that can confuse even experts -- and they may charge many hundreds of dollars.

Forging was an industry scourge even when the fine-watch market was growing at double-digit rates annually. Now, with growth sure to slow in the current economy, it's even more important for watchmakers to differentiate their products in consumers' minds.

Many luxury retailers -- particularly department stores such as Neiman Marcus -- have seen sales slow markedly this year. A survey released on Monday by Unity Marketing, a Stevens, Pa.-based consultant to the luxury industry, suggests that affluent consumers "are buying luxuries more selectively and more carefully."

The idea of Vacheron's new watch came out of a chance acquaintanceship between Vacheron Constantin Chief Executive Juan Carlos Torres and Roger Pfund. Mr. Pfund is an acclaimed Swiss painter and designer of the Swiss passport and international currencies since the 1970s. The painter met Mr. Torres socially several years ago.
'The Spirit of a Watch'

"To make secure watches was a new thing," Mr. Pfund said this past weekend, as he expounded on some of the artistic challenges involved. "The spirit of a watch is not the same as a bank note."

How does one use invisible ink on a watch, for instance? His answer: Print it on a slip of a paper-like polymer material that is inserted under the watch's crystal.

The Quai de l'Ile can be customized in up to 400 combinations and will sell for between $29,000 and $60,000, depending on which features are chosen. While the starting price for Vacheron Constantin watches is about $12,000, the company recently took an order from a European entrepreneur for a $6.5 million custom watch, says Julien Tornare, president of Vacheron Constantin U.S.

The company, which produces about 18,000 watches annually, expects to make 800 Quai de l'Iles a year.

To set the Quai de l'Ile apart, Mr. Pfund helped the company gain access to highly controlled money-printing materials like the polymer and inks, says Mr. Tornare. The inventory of polymer kept by Vacheron is monitored by the maker of Swiss passports, he said, noting, "We had no idea about security printing."

The watch's security measures involve engraving and printing with special inks. In the first series of watches produced, the words "Swiss Made" and "Automatique" are laser-engraved without using ink on the watch's dial, while some of the numerals, the date and the words "Vacheron Constantin Genève" are engraved with ink.
Miniature Texts on the Dials

Tiny texts on the dials of some models -- illegible without the aid of a magnifying glass -- reproduce parts of letters sent between 19th-century family members of the watchmaker, Jaques-Barthélémy Vacheron and François Constantin.

The Quai de l'Ile was unveiled to the watch industry last spring at the Salon International de la Haute Horlogerie in Geneva. That annual convention is sponsored by Cie. Financière Richemont SA, the luxury conglomerate that owns such oft-counterfeited brands as Vacheron Constantin, Cartier and Van Cleef & Arpels.

This appears to have given would-be counterfeiters an opportunity to get cracking on Vacheron's come-and-get-me challenge. Mr. Pfund, who is currently designing the 2010 series of the Quai de l'Ile, says, "They already have fakes of this watch. I saw one yesterday on the Internet. Of course, the movement is wrong -- a lot of things are wrong."

Original Article by Christina Binkley
Wall Street Journal Fashion
Oct. 16, 2008

Platinum Gets Dented in the Auto Industry's Pileup

Slumping Car Demand Crimps Need for Catalytic Converters, a Big User of Metal, but Possible Drop in Mining Output May Buoy Prices,

At Friday's lows, spot-month futures on the New York Mercantile Exchange were down 38% on the year and 59% from the record set in March as the global economic slowdown pinches industrial use.

Platinum could fall further on weakness in the auto sector, but then stabilize or rise modestly as investment liquidation runs its course and due to potential for output cuts as the price approaches the cost of mining, analysts said. This makes it a great time to buy platinum wedding bands.

The impetus for the early year peak was worries about tight supplies exacerbated when South Africa state-owned utility Eskom Holdings Ltd. announced electrical shortages that curtailed mining output.

"Supply was being outpaced by demand," said Bart Melek, global commodity strategist with BMO Capital Markets. "We had a massive rally way above the marginal cost of production."

Since then, the auto industry has slumped. This hurt platinum demand because its main industrial use is for catalytic converters.

Nearby October platinum Friday fell $22.60, or 2.3%, to settle at $957 a troy ounce. Most-active January lost $20.80, or 2.1%, to $965.80.

James Moore, an analyst with TheBullionDesk.com, said platinum's recent move is cyclical, reflecting changed fundamentals. Moreover, he said, the fundamentals perhaps were "overexaggerated" as prices soared at the start of the year. But he doesn't look for the recent slide to continue much longer because a "delicate balance" remains in the market.

"Eskom has already said they can't increase their energy capacity for at least another five years," Mr. Moore said. "The producers are struggling against rising costs and having to excavate metal from much deeper ore bodies. This has a massive impact on their bottom line."

If profitability suffers, downward price corrections such as the current one could prompt producers to shut down some of their operations, he said.

"In my view, it would be naive to think that the market is going to continue lower," Mr. Moore said. "We may see some further downside initially, but then look for it to possibly stabilize around $1,000 to $1,300 for the latter part of the year and heading toward next year."

BMO's Mr. Melek estimated that the cash costs of production for platinum-mining operations are between $700 and $1,000 an ounce.

"They might still go lower," he said of platinum prices on things like platinum wedding rings. "But they ultimately will have to rebound because we're hitting the marginal cost of production for many producers."

CPM Group analyst Carlos Sanchez also said there could be more selling pressure, but prices may soon stabilize.

Not only has platinum been hurt by concerns about reduced motor-vehicle production, but expectations are for a shift toward smaller vehicles at a time of high fuel prices. Smaller engines require less platinum group metals for auto catalysts, Mr. Sanchez said. Meanwhile, no further supply disruptions have occurred in South Africa lately, he said.

But at the same time, he said, many investors already may have sold some positions.

"You may go to $900," Mr. Sanchez said. "But they're already low compared to what they have been the last couple of years. So you may not have further selling."

In other commodity markets:

SUGAR: Prices dropped to a four-month low on ICE Futures U.S. as speculators exited from bullish positions, but the market pared losses before a vote by the House of Representatives approving the $700 billion financial-rescue package. ICE March world sugar fell 0.47 cent, or 3.6%, to 12.61 cents a pound.

CRUDE OIL: Futures zigzagged before ending slightly lower as traders mulled whether the passage of the rescue bill would stabilize demand. Demand concerns were reinforced after the Labor Department reported that nonfarm payrolls fell more than expected in September, the steepest decline since March 2003. Light, sweet crude fell nine cents, or 0.1%, to $93.88 a barrel, on the New York Mercantile Exchange.

By: Allen Sykora
Wall Street Journal; October 5, 2008

How To Choose a Jeweler

Visiting a jeweler to shop for wedding jewelry can be an overwhelming experience because most shoppers simply don't know enough about the intricacies of gemstones and precious metals to make their choices easily. That's why finding a reputable and competent jeweler is so important.

Any jeweler should be willing and able to show customers a variety of gemstones and jew­elry in different shapes, sizes and qualities, and should stock a broad selection of ring styles to enable you to decide which best fits your pocketbook.

Your jeweler also should be able to help you learn to see with your own eyes why some diamonds of similar size differ greatly in value, or from a practical perspective - how you might reasonably select from a variety of different sizes, all priced similarly to fit your budget.

All of us like to feel that we re­ceive a good value when we make a major purchase. Take time to find what you want and where you want to buy it. Diamonds, for instance, can be confusing. Even if two dia­monds are the same size, color and clarity, differences in the way they were cut, their finish and fluores­cence can cause one to be worth much more than the other.

Buying Gemstones

Gemstones have been sought after and treasured throughout history. They have been found in ruins dating back several thousand years. They are valued as gifts sym­bolizing love.

Generally, the price of any gem­stone is determined by size, cut, quality - which includes color, clarity and treatments - and type.

Here are some simple questions to ask about quality:

• Has it been heat treated?
• Is the stone natural or synthetic?
• Are there any noticeable scratches, chips or inclusions?
• Is the color even throughout the stone?
• How strong is the color? Is it vivid?
• If you are buying the stones for earrings or cuff links, are the stones well-matched?

Advice To Protect Jewelry

Try to protect any jewelry from scratches, sharp blows, harsh chemicals, extreme temperatures and sunlight.

Here's some advice about how to keep your jewelry in good condition:

• Store jewelry separately so it doesn't scratch other jewelry.
• When doing household tasks such as gardening and cleaning, be certain to remove rings.
• Put your jewelry on after washing or bathing and applying any makeup or hair spray.
• Never wear jewelry while swimming in a swimming pool. The chlorine can cause damage to various gemstones and gold.
• Avoid storing your jewelry next to a heating vent, window sill or on a car's dashboard. Store jewelry away from sunlight (the sun may fade the gemstones).
• Always store bead necklaces (such as lapis, pearls, etc.) flat; silk stretches over time. Do not store pearls in plastic bags.
• Gemstones may become loose in their settings (and possibly fall out). Be certain that stones mounted in rings are not loose and don't rattle. The prongs of a ring can and do wear down. If the prongs wear down too much or break, you can lose the stone. Prongs are easily "retripped" by most jewelers to keep the stone secure.
• Most jewelers will restring necklaces or reset stones (for a fee)
• Sterling silver will polish up by rubbing or buffing it with a soft cotton cloth.
• Store silver in plastic bags with an interlocking seal to make it less prone to tarnish.

Remember, also, that the hard­ness of stones plays into how they can be treated. Hardness is based on a gem-trade standard called the Mohs Scale. The higher the Mohs Scale number, the harder the stone. The highest Mohs Scale rat­ing is 10, for diamonds.

Anything rated less than 7 on the scale can be easily scratched - coral, lapis lazuli, opal, pearl and turquoise, for instance. Gold, silver and platinum are at the soft end ofthe scale.

Key Point to Consider

When you're searching for a jew­eler, remember that you may spend thousands of dollars over time at this business. It's imperative to find someone you feel comfortable with and someone who is willing to work with you when you have questions about jewelry, repairs or perhaps special orders.

Find a store where the owner is the jeweler, someone actively involved in the store's operation who knows his clientele and the business.

Your chosen store should be able to design and create fine jewelry.

The staff should be happy to spend time with customers to edu­cate them about jewelry and what's currently available on the mar­ket. Work should be done on the premises. After all, you've chosen your jeweler because of his or her expertise.

Look for well-known jewelry and watch lines while you're shopping. Your jeweler should offer free gift wrapping, in-town delivery and, above all, superb customer service combined with an expert staff.

Original Article by
Wall Street Journal