Gold was punished Friday hitting a nine week low at a spot price last reported p.m. of $1165.80 down $31.60 and Silver is $15.85 down 36 cents. Mainstream media reports the cause for the smack down being a “robust” U.S. jobs report and a rally in the U.S. dollar index. Partial truth at best as the graph below shows the accelerated drop this morning. Undoubtedly our bullion banker friends started the snowball with another huge sell-off and investors joined the herd trying to stop more loss.
Gold performed much better this morning against other major currencies and was only down $7.00 in euros. The Eu with the exception of Germany is in worse economic condition than the U.S. and the European Central Bank is beginning its QE program to make things worse. More debt equals more pain.
Commerzbank stated in a memo this morning that the ECB “may need to extend its purchasing program beyond September 2016 or increase its monthly purchases to 60 billion if it’s going to reach its targets. This should benefit precious metals, above all gold and silver.”
China, Russia and India may have some new competition in the gold market as Apple may purchase around 1/3 of the world’s annual gold supply for its new line of watches. The watch will come in three varieties, “sports” model, “Apple Watch” and the top dog “Apple Watch Edition”. The company say’s the top of the line model will be made with 18K gold and is estimated to retail between $4,000 and $10,000. Apple has ordered their manufacturing plants in Asia to produce around 5 to 6 million units.
Around one third of the order will be made up of the mid-range watch leaving an estimated one sixth of the order to be comprised of the gold edition. Tidbits, the independent blog discussing all things Apple have estimated that each watch will use 2 ounces of gold. While this may be an over-estimation – a watch made of 75% gold would be be quite bulky if it used a full two ounces – it is not impossible, especially if buyers were to opt for a gold bracelet with the watch.
Apple’s reported expectation to shift one million units of the Edition model will be a tall order. In the end it will probably come down to the price. Even at the lower end estimate of $4,000 it’s hard to imagine Apple shifting one million units each month. However, Apple’s ability to generate a buzz or hype, depending on your perspective, cannot be under-estimated.
While details concerning the actual function of the Watch do not suggest a “must-have” motivation for buying it – at least on technological grounds – Apple raving fans may create the massive demand the company expects. It does not have the element of indispensable usefulness that one could associate with the iPhone or iPad. The major attraction of the ‘Watch’ will be a fashionable one and be about being part of the Apple ‘tribe.’
This is not a terrain in which we would normally expect a technology company to operate in comfortably. However, Apple has recruited the former CEOs of Yves Saint Laurent and Burberry to make up for their lack of expertise. It will be interesting to see how this synergy works out.
If the Watch Edition is to be successful it will require a leap in the psychology of jewelry buying. However, we would be hesitant to bet against the capabilities of the Apple marketing machine and the loyalty of Apple buyers in this regard. Should the Watch Edition retail at $4,000 it should leave Apple reasonable room to maneuver in the event of a spike in the price of gold. If Apple were to use a full two ounces of gold it would currently cost them roughly $2,400.
Assuming other costs are not much greater than those involved in producing the Sports model which is expected to retail at $349, we can assume that Apple will have a buffer of around $1,200, to absorb a gold price spike of 50%. These figures don’t include marketing costs or expected profits.
The CultofMac blog speculates that Apple would need to wrest 45% of the share of luxury watches from the likes of Rolex and other high-end Swiss watches to meet its target. It is, however, likely that Apple will attract lot of customers who would not normally be in the marketplace for luxury watches.
One million units per month utilizing 2 ounces of gold would amount to the 746 tons of the yellow metal. While Apple may not use that amount of gold per unit and may not shift its expected volume of units, what is important is that there is a major new buyer in the gold market. Where Apple goes others follow.
Gold Goliath is offering special incentives on 1 ounce silver bars. These are available at less premium than legal tender coins affording investors more metal for the investment. They are also available for a gold IRA.
Please watch for our new website to be launched any day. Gold Goliath has some very nice surprises in store for our clients. Call 1-800-577-3195 for questions about purchasing precious metals.
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