Monday April 13, 2015 15:41
The Apple mystique is still alive – despite being late in the smart watch market, the company’s “Apple Watch” has become the perhaps most anticipated product launch of the year. Gold investors are eyeing the line of “Edition” gold watches in particular. Much speculation is taking place on if and to what extent the gold watch will upset gold prices. Will it?
Three factors will play a deciding role:
How much gold does the Apple Watch contain?
The watch casing will be made of 18 karat gold. The interesting twist is anApple patent that surfaced just recently suggesting that a novel low density ceramic material is used as an alloy component. This will, in a way, allow Apple to use less gold compared to conventional alloys because the karat is weight-based and not volume based as a unit. At any rate, about half an ounce of gold will be used in each watch, in addition to the gold and other technology metals contained in its electronic parts, and the screen.
The Apple Watch, therefore, contains about $ 600 worth of gold. If you had any doubts: given its price tag and high production volume this makes the Apple Watch a rather poor investment.
Depending on the scenario applied, this will put gold consumption at 0.5 – 5.0 million ounces a year, the likely number being somewhere in the middle, perhaps.
How many “Edition” Apple Watches will be sold annually?
Apple’s official target for 2015 is 20 million smart watches overall, 17% (3.4 million) of which are to be “Editions.” At this point, many market analysts are skeptical that the company will be able to meet this goal. The initial run is 5-6 million units. According to Apple, the “Edition” watches already sold out in the pre-order process. At prices ranging from US$ 10,000 to 17,000 and profit margins of over 60%, the issue of volume might upset Apple’s share prices even more than it would impact the gold market.
Two effects are at work: an affluent group of buyers being able to pay this kind of money for a luxury item; and the contradiction of coupling a metal representing lifetime value with a first generation technology item that will likely be replaced by a new version next year. Which trend will win? Either result will be a valuable lesson for technology marketers.
Which other products will they substitute?
Lastly, the question is if Apple Watch customers will buy fewer conventional gold watches instead? The Apple Watch would then cannibalize this market, and the additional gold draw would be reduced accordingly. Once again, only a marketing oracle can predict what will happen.
Whichever scenario is applied, the overall annual turnover in gold, a strong recycling market, increased collection rates of used electronic devices and other effects are likely to even out the effect, even if Apple hits the upper limit of expectations. By the end of the year, the world of applied marketing will be an important case study richer.
By Bodo Albrecht,
tminsider@eniqma.com
tminsider@eniqma.com
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