Download Gold and the Jewellery Supply Chain A Context Philip Olden: 18th

Gold and the Jewellery Supply Chain
A Context
Philip Olden: 18th May 2010
© Philip Olden 2010
The revitalisation of gold jewellery demand
Gold Jewellery Demand (US$m)
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2000
2001
Others
2002
India
2003
USA
2004
2005
Middle East
2006
2007
Turkey
2008
2009
Gtr China
Source: GFMS, WGC
© Philip Olden 2010
Market profiles, gold and diamond jewellery
8%
2%
22%
RoW
India
18%
USA
2% 4%
12%
18%
7%
11%
M East
Japan
1%
Gtr China
23%
8%
40%
Turkey
Italy
16%
9%
Gold Demand 2008:
$60 billion at av. gold price
Diamond Demand 2008:
$14 billion at rough prices
Source: GFMS, WGC, IDEX, Tacy
© Philip Olden 2010
Gold supply chain is not linear
41% of supply
“Scrap”
Supply
Consumer
Retail
Import/
Wholesale
Manufacture
Alloying
Bullion
bank
Refining
Mine
Supply
59% of supply
“Scrap” supply is a major component and makes the supply chain cyclical.
“Scrap” gold: “recycled”, “pre-owned”, “laundered”?
© Philip Olden 2010
Gold supply chain is not linear
41% of supply
“Scrap”
Supply
Gold can be owned and supplied by multiple participants in the
supply chain. This also makes the supply chain non-linear.
“Unallocated” bullion can be sold, leased, loaned, swapped etc.
© Philip Olden 2010
Consumer
Retail
Import/
Wholesale
Manufacture
Alloying
Bullion
bank
Refining
Mine
Supply
59% of supply
“Unallocated” and “allocated” gold
Unallocated gold:
-
gold as money
not individually identified and owned
can be leased, loaned, swapped by bullion bank
stored and insured by bullion bank
the simplest and cheapest way of owning gold
not traceable (yet?)
Allocated gold:
- gold as a product
- individually identified and owned (bar serial numbers)
- bullion bank cannot “deal” in the gold
- separately stored and insured at cost to owner
- used where integrity of inventory is essential (e.g. ETFs)
- traceable
© Philip Olden 2010
All gold jewellery is bought by weight
1 oz, branded “fixed price” gold jewellery (c. ⅓ of total)
Refiner Duties/
margin freight
Cost of
Production
Mine
margin
$600 – $700
Making
charge
Bullion bank
buy/sell
spread
W/S
margin
$1,000 $1,200
Spot price
Retailer margin
$1,400
$1,800- $2,000 +
1 oz, unbranded “commoditised” gold jewellery (c. ⅔ of total)
Refiner
margin
Cost of
Production
Mine
margin
$600 – $700
© Philip Olden 2010
Duties/
freight
Bullion bank
buy/sell
spread
Making charge/
retailer margin
$1,000
$1,200 -$1,400
Spot price
Perceived obstacles to gold chain of custody
• Gold as money
• Tight margins
• Large “above ground stock” and “scrap” supply
• Non-linear supply chain
• Over-capacity in refining
• Lack of will
• Existing gold chains of custody are insignificant
© Philip Olden 2010
Opportunities to create a gold chain of custody
• Mine supply is traceable
• Establish dedicated/allocated refining
• Integration of mining and refining
• Use of allocated gold accounts
• Involve bullion banks in RJC process
• Collaboration of RJC and ICMM membership
• Impact of “Freetrade/Fairmined” gold
• Focus on “branded” fixed price market in US/EU
• Create reputational and financial value
© Philip Olden 2010
Reputational risk of “dirty” gold
• It’s about mining practices
• Gold is a consumer product
• NGOs influence public opinion and media in US/EU
• Gold sector is fragmented and lacks leadership
• “No Dirty Gold” Golden Rules unenforceable?
© Philip Olden 2010
The jewellery industry’s reputation
• Damaged by blood/conflict diamonds, dirty gold
- High profile with NGOs and media
- But little impact on sales
• Strong alignment by industry leaders to address
reputational issues, despite fragmentation
• Industry remains very defensive
• Fine jewellery losing market share
• Losing relevance and desirability with younger
consumers
© Philip Olden 2010
Trust: the new opportunity?
• Consumers have lost trust in businesses/companies
- 2009 in US was all-time low of 38%
• 91% bought products from companies they trust
• 77% refused to buy from distrusted companies
• 55% paid a premium price from a trusted company
Source: Edelman Trust Barometer 2009, 2010
© Philip Olden 2010
Trust will change jewellery marketing
2006
2010
Quality products &
services
53%
Attentive to customer
needs
47%
Financial
performance
42%
83%
Company I can trust
83%
High quality products &
services
Fair pricing
38%
Communicates frequently
Well known brand
37%
Treats employees well
Employee relations
35%
Socially responsible
33%
79%
75%
72%
Good corporate citizen
64%
Prices fairly
58%
Visible CEO
23%
Innovator
48%
Dialogue with
stakeholders
23%
Top leadership
47%
Employee/CEO
communication
12%
Q: What shapes your trust in a company?
© Philip Olden 2010
Transparent and honest
practices
Financial returns
45%
Q: How important are these factors to corporate reputation?
Source: Edelman Trust Barometer 2010
Trust: the new opportunity?
• Trust is now;
- a major market differentiator
- a source of reputational value
- a source of financial value and price premium
© Philip Olden 2010
We can create competitive advantage
• The best responsible sourcing guidelines in the
premium/luxury market
• Leading players in industry driving change
• Be more positive, less defensive
• Create reputational and financial value
• Improve market share and consumer demand
• Chain of custody is important to enable this
• Must connect with consumers at retail level
© Philip Olden 2010
We need a chain of custody in gold
• Gold is largest and broadest category
• Consumers will demand it, esp. in US and Europe
• It is possible, esp. in high margin US/EU markets
• Requires the will to change
• Needs to be significant to be credible
• Enables a more positive competitive position
• Will drive reputational and financial value
© Philip Olden 2010
Gold and the Jewellery Supply Chain
A Context
Philip Olden: 18th May 2010