Will the Apple gold watch move the market – probably not

Will the Apple gold watch move the market – probably not

But it should have an impact on consumption.  Given that it is being made in China perhaps that’s where all that missing SGE gold is going!

Apple has announced that its new smart watch will be going on sale next month, and the pricing, which will run from $349 for a bottom of the range 32mm case version up to $17,000 for its top of the range 42mm gold cased Edition version.  But nowhere has it stated how much gold will be utilised in its top end model.

What we can, perhaps, compare it with is the solid gold Rolex President – a chunky piece of mechanical watch kit, but where a complete breakdown of its gold content was published back in 2006.  That article is nowadays downloadable off the UK eBay site – click here to view.  This article suggests that the watch casing, bezel etc. only contains around two-thirds of a troy ounce of pure gold, but the whole package something over two ounces, that balance being provided by the strap which contains over one and a half ounces of pure gold.  The article does not mention the case diameter but we would assume around 40mm which is comparable with the top end Apple watch, but rather larger than the 32mm version.

However the actual weight in an Apple watch would also be dependent on case thickness and it is not being offered with a gold strap as yet.  Until someone buys one, takes it apart and weighs the components we probably won’t know, but we would guess at between 0.5 and 0.75 ounces.  Assuming the innards are the same as the base model, Apple would be making a very significant mark-up on the component cost given the $17,000 price tag and an assumed gold content cost of say $900.  But even if Apple surprises us with a far heavier version containing say an ounce or more, it would still be making a huge mark-up on the gold content, which strikes us as a pretty smart profit ploy if it can sell the gold versions in quantity.

But of course sales volume is the other key element here.  Can it sell its gold Editions in volume?  On the face of things one would think that would be a difficult task, but its probably not aiming its watch at a value oriented high end jewellery buyer per se, but for younger techies, often with really good disposable incomes, who are happy to queue in line overnight and swamp the Apple store on launch dates for the latest piece of gear – or the generation falling over itself in China (which Apple sees as its likely main market) to buy gold plated cellphones at exorbitant costs.  Apple’s marketing expertise (hype) will undoubtedly stand it in good stead here.  But to sell, as some have suggested, one million gold Apple Edition watches a month - that strikes one as marketing hype of the highest order.  But then Apple has delivered on many of at-the-time seemingly optimistic targets in the past, although whether it can still do so in the post-Steve Jobs management generation perhaps remains to be seen.  And, it has to be said, has also had its failures too.

But, let us assume that perhaps Apple has ordered one million such watches, each containing say half an ounce of gold for its launch, then that would require 500,000 troy ounces of gold or around 15.6 tonnes.  That certainly wouldn’t be enough to move the gold market, although it could already well have accounted for a small proportion of the gold volumes we’ve seen move through the Shanghai Gold Exchange in recent months given that Apple’s Chinese suppliers will have needed to build inventory.

Now it is possible that at some future stage a gold strap may be offered, but at a price, which could further boost the gold content.  It is also possible that, if sales of the gold Edition watch are looking successful then it may encourage other manufacturers also to offer gold versions of their products too and tap into the techno-bling generation.  Who knows where it will all lead.

But, the big question facing gold investors is will this have any real impact on the gold price – even if Apple does sell its gold watches in huge numbers?  The gold price seems to be being so micro-managed these days by ‘trades’ on the paper futures markets that actual supply and demand fundamentals seem to have only a relatively minor bearing on the metal price – at least for the moment.  It is an interesting development for sure, if only to see if Apple can market such a high value product in volume – but as a game changer for the gold price, we don’t think so, but would love to be proved wrong!

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