Gold rises to over $900 on Fed interest rate cut

Gold has regained its value in recent months as prices climbed to more than $900 (€610) an ounce. Despite the tumult in global markets, gold is still expected to climb in value and exceed the year's record $914 per ounce, buoyed by the Fed's interest rate cut on Tuesday.

However, while it may be good news for investors, the rising price has had a knock-on effect for jewellers, threatening to price some small businesses out of the market.

Matin Gere, owner of Gere Jewellers in Dorset Street, Dublin, says the rising price of gold has hit some jewellers hard.

"We've had to come up with some unusual and innovative ways to survive," he said. "One way is offering trade-in on old or broken gold."

Mr Gere is also reviewing old stocks to salvage items that had previously been placed on hold for customers for a small deposit.

He says the high prices may have a positive impact on the jewellery business, however.

Some jewellers have been forced to return to more traditional business areas, such as taking on more repairs, expanding non-gold product lines and selling more silver.

The larger jewellers, such as Weir & Sons in Dublin, may still have significant stocks of jewellery on their premises that were purchased at lower prices. "It hasn't hit us fully yet," said Chris Andrews of Weir & Sons.

"If [ the price] stays where it is, it will affect us and will affect future sales."

Most jewellers have a fixed mark-up on their products, Mr Andrews said, and increased prices will mean this is passed on to the consumer if jewellers want to retain those prices. "People will find their money won't go as far. There will also be more second-hand pieces," he said.

Some respite has been predicted and one new market analysis speculates that the price of gold could fall to $800 an ounce by July, as the high prices discourage jewellers from buying.

According to London-based research company GFMS, prices in the first half of the year will average about $840 an ounce, down from the current average of $874 so far this year.

The weak US dollar can be held partly responsible for the recent price hikes, which has boosted demand for precious metals at the expense of US stocks and bonds. Meanwhile, an unexpected fall in mine output to 2,444 tonnes - the lowest since 1996 - is also having an effect. This was due to reductions at mines such as Gold Fields Beatrix deposit in South Africa and Newmont Mining's Yanacocha in Peru.

This is expected to change this year, with GFMS predicting global mine production to rise 2.4 per cent to 1,226 tonnes in the first half, compared with a year earlier. There have also been some changes on the producer front, with China taking over from South Africa as the world's largest gold producer in 2007, a lead it is expected to extend this year.

According to GFMS, gold demand from fabricators, including jewellers, could dip 18 per cent to 1,333 tonnes in the first half of the year, and go as low as less than 50 per cent of total consumption. This is in contrast to last year, when demand from jewellers rose 5.5 per cent to 2,407 tonnes, which represented 62 per cent of consumption.

Although research indicates jewellers could save gold from slipping too far, economic circumstances could buoy the prices. "Jewellery demand, which has dried up at these prices, will kick in at lower levels and prevent prices from going below $800," said Philip Klapwijk, executive chairman, GFMS.