After a year of soaring gold prices, makers of luxury watches have been left with a heavy precious metal headache. Where a year ago procurement teams were buying gold at about $2,300 an ounce, now the figure is around $3,300 an ounce, a 40 per cent increase. With stock markets still volatile, few analysts are forecasting a correction.
Luxury watch companies are reliant on sales of gold watches. According to the Federation of the Swiss Watch Industry, last year watches made in precious metals, including materials such as platinum, accounted for almost 40 per cent of total Swiss watch exports by value but only 2.7 per cent by volume.
Many brands have passed costs on to consumers. Rolex, the Swiss watch industry’s largest watchmaker, increased the prices of its gold watches by 8 per cent at the beginning of this year, following two price increases in 2024. A second increase is expected next month.
Others have made swingeing cuts to their inventories, withdrawing hundreds of gold models from the market. According to data gathered by Geneva-based marketing agency Digital Luxury Group, in the first three weeks of April, the average price of a Cartier watch available on the brand’s US website fell 30.4 per cent, following a 63.8 per cent inventory reduction, as higher priced gold watches were withdrawn.
DLG also observed that price increases since US President Donald Trump’s tariff announcements in early April became more pronounced, peaking at a 17.5 per cent price rise for watches over $100,000. Rose gold watches were affected most sharply, with prices increasing 23.5 per cent against an inventory drop of 16.4 per cent, marking a dramatic shift in balance.
Smaller brands are trying to keep up. “We’re using the gold we bought last year now, but we’re not reordering unless it’s essential,” says Edouard Meylan, chief executive of independent Swiss watchmaker H Moser & Cie, noting that demand for rose gold watches remains high and that “over the past few weeks we sold a lot of gold watches to people wanting to invest”.
While its figures do not include watches, the World Gold Council says demand for gold from the jewellery sector fell from 538.5 tonnes in the first quarter of 2024 to 434 tonnes in the same period this year. Overall global demand increased 1 per cent year on year, driven by an uptick in gold investment of 170 per cent.
“I’m cancelling all the gold that isn’t 100 per cent necessary because I don’t know how to price it and because at the moment gold watches carry the highest risk with the least margin,” Meylan says. “I’m focusing on steel and ceramic.”
For others, the only option is to keep increasing prices. “We increased prices at the end of last year and we all have to increase prices again,” says Romain Marietta, chief products officer at Zenith, one of LVMH’s Swiss luxury watchmakers.
For both Moser and Zenith, gold watches account for around 20 per cent of annual volumes, but 30-35 per cent of sales. “The price of white gold in particular has become too high for serial production products, and now even for limited editions,” says Marietta. “You end up with a retail price that isn’t competitive with the major brands producing gold watches in volume.”
Luca Solca, a senior analyst at research company Bernstein covering global luxury goods, expects rising gold prices to create clear winners and losers. “The most desirable brands will be able to plough through this — Rolex, for example,” he says. “Lower brands in the consumer pecking order will have to adjust to lower volumes. ‘Rightsizing’ will be the name of the game — that is, cutting costs and reducing capacity.”
Previously, it had been thought buyers of high-ticket luxury items were less price sensitive than buyers of entry-level products but, according to Marietta, there are signs that has changed. “We thought the higher segment would be untouched and the real diehard collectors that can afford these watches would not be price sensitive,” he says. “But we have to rethink and pay attention to price sensitivity.”
Marietta says Zenith has turned its attention to developing models in metals such as platinum and tantalum, both of which are rarer and more difficult to machine than gold and might offer better margins. The brand’s main launch this spring was the GFJ Calibre 135, a 160-piece limited-edition watch in platinum that on an optional platinum bracelet carries a price tag of almost $100,000.
According to Oliver Müller, founder of Swiss luxury consultancy LuxeConsult, the cost implications for brands are even more severe than they first appear because a gold watch case is machined from a gold bar weighing five times the end-product. Scraps retain their value and can be recycled, but the upfront outlay is punitive. “Brands have to compensate not just for increasing raw material prices, but also increasing financial costs,” he says. “This has a significant impact on cash flow.”
As gold prices increase, some retailers say demand for gold watches shows no signs of slowing. “In our market, we find demand for precious metal watches relatively inelastic,” says Mohammed Seddiqi, chief executive of Ahmed Seddiqi, the largest watch and jewellery retailer in the UAE. “Clients who are keen collectors and aficionados continue to acquire gold timepieces.”
While some makers have said they will reduce volumes of gold watches, Seddiqi says he expects brands will fulfil his orders. “We remain certain that the supply will remain consistent based on the demand for watches,” he says. “Currently, we have a regular influx of watches with regular shipments being fulfilled.”
Analysts suggest brands will need to focus on innovating around other, or even new, precious metals. “One solution would be to avoid precious metals and concentrate on other materials,” says Müller. “Richard Mille is the epitome of leveraging plastic to the value of gold. But then you risk losing market share at the high end, which is still the strongest market segment. Alternatively, you reduce the amount of gold in your watches by, for example, extruding components. This would help alleviate the cash flow burden.”
Meylan forecasts some significant material shifts. “White gold will die because steel is cheaper and more fashionable, while we may have to replace gold with materials such as palladium and tantalum,” he says. “In time, gold watches may become as expensive as platinum watches as scarcity increases.”
But working with alternative metals may not cut it. “From our experience, clients looking to acquire a gold watch will always purchase a gold watch irrespective of if there are platinum, palladium or tantalum versions,” says Seddiqi. “Their decision-making is not usually driven by alternative options.”
Another effect of rising gold prices could be a spike in pre-owned prices as buyers look to take advantage of a dip in the market that, according to Morgan Stanley, has experienced 12 consecutive quarters of decline. But Charles Tian, founder of the WatchCharts pre-owned market tracker and co-author of Morgan Stanley’s quarterly market reports, says the secondary market has yet to experience any significant shifts due to the rising price of gold. “The main reason for this is simply that the value of the gold in the watch is not substantial enough relative to its overall market value. Even with gold being up 40 per cent in the past year, this most likely translates to no more than a 10-15 per cent increase relative to a watch’s overall value.”
He notes that gold watches, specifically Rolex models, have outperformed steel models over the past five years, increasing at median values by 32.3 per cent, compared with 26.4 per cent for steel. Even so, he adds, the cooling in the secondary market over the past three years since the pandemic-induced watch investment rush that sent prices rocketing means buyers are not zeroing in on the category today.