More palatable metals

The past few years have marked a love-hate relationship between jewelers and precious metals. On one hand, nearly everyone profited from rising prices by buying from the public, a lucrative practice that helped keep many afloat during the darkest days.

Conversely, high metals prices can make the actual practice of retailing fine jewelry a significant challenge. The definition of fine jewelry is a simple one: jewelry constituted of precious components. And those are few. In metals, it's gold, platinum and--increasingly recently--silver. In stones, it's diamonds, rubies, sapphires, emeralds, pearls and perhaps a few others. That's our spectrum. So when gold and platinum went astronomical, we suffered.

Now, however, several factors are adding up to mitigate the problem. First, and most obvious, metals prices have come down. Just a few weeks ago, gold broke through $1,900 an ounce, and the bugs were making claims for $2,000 and well beyond. Today, however, we're back in the mid-$1,500s. Platinum is even a hundred bucks cheaper. Historically, these remain high prices. But the trending vector portends more realistic levels.

The second factor stems from ourselves. Designers and manufacturers have developed styles and techniques to increasingly maximize appeal and aesthetics of pieces with less metal content. Moreover, an increasing focus on colored stones amplifies this factor. For one thing, colored stones offer greater margin than diamonds, which are more commoditized. And for another, the more expensive the stone used in a piece, the less influential the metals price is in affecting the final price tag, simply because it represents a relatively smaller percentage of overall value.

Finally, there's an economic factor at play, too. Inflation hasn't hit just precious metals over the past few years. We all drive, for example, and share the pain each time we fill the tank. But food, clothing--necessities as well as luxuries--all have seen prices increase substantially. Bottom line is that, after several years of this, consumers' expectations of pricing levels have essentially been reset. We've complained all along. But at this point, few shoppers are shocked that things cost more. Sometimes a lot more.

That makes expensive jewelry relatively more palatable. All in all, then, as we approach the main open to buy period of the 2012 business cycle, precious metals may be turning the corner from a sell recommendation to a buy.