Could the Apple Watch Edition Spark a Gold Supply Crunch?

Source: Apple.com

Source: Apple.com

Ever since Apple first unveiled the Apple Watch last September, the wrist worn device has been the focus of media speculation about its cost, features, and sales potential. While this is probably true of every upcoming Apple product, speculation about the Apple Watch has been especially intense due to the limited amount of information that is known about the device. Although Apple revealed several of the device’s unique interface features and a general overview of  some of the types of apps that will be available for the Apple Watch, the company declined to provide many other important details, such as the Watch’s battery life and a full pricing list for all the various models.

The Apple Watch has also attracted high levels of attention due to characteristics that make it different from any other product that Apple has ever made. Not only is the device Apple’s first entry into the burgeoning wearable tech market, it also marks the debut of the company’s first new product category since the iPad was introduced in 2010. And while CEO Tim Cook has overseen a period of unprecedented growth at Apple ever since he took the reins from Steve Jobs in 2011, there are many industry watchers who believe that the success or failure of the Apple Watch will be the ultimate test of Cook’s leadership, since the device is the first original product to be completely conceived, designed, and released under his tenure.

As the first Apple product made of 18-karat gold, the premium Watch Edition variant may be the most unique among the three “Collections” of smartwatches being offered by Apple. So far, most of the speculation about the gold content of the Watch Edition has focused on how it could affect the device’s retail price. After all, gold is a highly sought after commodity that has a value whether or not it is fashioned into the shape of a watch. However, considering the success of Apple’s previous products and the scale of its production capabilities, it may be worth examining the relationship between gold and the Watch Edition from another angle. In other words, how will the gold supply be affected if the Watch Edition becomes a bestseller for Apple?

Source: Thinkstock

Source: Thinkstock

In a recently published article, Josh Centers at TidBITS explores the potential impact that Apple’s upcoming gold product could have on the worldwide gold supply. According to Apple Watch production estimates provided by The Wall Street Journal’s sources, the company may ship as many as one million Watch Edition units per month by the second quarter of 2015. Apple Spotlight’s Rob Wensing believes that the gold content for the Watch Edition will range between 50 and 75 grams. Using the estimates provided by those two sources, TidBITS’s Centers calculated how much gold Apple might need each year to produce its premium smartwatch model.

Assuming that each Watch Edition model will require around two try ounces of gold (62.2 grams), Centers figured that Apple will need 24 million troy ounces of gold per year, or approximately 746 metric tons. According to NumberSleuth.org, about 2,500 metric tons of gold is mined each year.  This means Apple could consume a whopping 30% of the world’s total annual gold production each year. With the price of gold currently around $1,200 per ounce, Apple could spend as much as $28.8 billion per year on gold alone.

Needless to say, this amount of consumption could have a noticeable impact on the supply — and therefore the price – of gold around the world. However, before you run out and start buying up gold in anticipation of a coming shortage, please note that this calculation comes with some major caveats. After all, these calculations are based on not one, but two, unknown variables.

Source: Apple.com

Source: Apple.com

Since the 12 million Watch Edition production number was provided by The Wall Street Journal’s unnamed sources, it is impossible to confirm its accuracy. Similarly, it is also unknown how much gold each Watch Edition will actually require. Although the 50 to 75 grams cited by TidBITS was Apple Spotlight’s “low” estimate, another source cited by Forbes pegged the Watch Edition’s gold content at 29.16 grams. If the Apple Watch Edition’s sales numbers and gold content are being vastly overestimated, this will obviously change the amount of gold that Apple will need each year.

As previously noted, the gold content of the Watch Edition has inspired similarly varied guesses about the product’s retail price. Jewelry experts consulted by TechCrunch last September estimated that the Watch Edition would retail for $1,200 or less. Based on a gold content of 29.16 grams, a source cited by Forbes estimated the price of the Watch Edition would start at around $5,000. On the far end of the spectrum, Daring Fireball blogger John Gruber believes that the Watch edition will start at $10,000, but could go as high as $20,000. While Apple’s ability to sell millions of expensive devices should not be underestimated (case in point being last quarter’s iPhone sales numbers), it’s hard to imagine that even Apple could move one million Watch Edition units a month at a cost of $20,000 each.

On the other hand, even lowered sales numbers or less gold content per Watch Edition could still have a significant impact on the world’s gold supply this year, especially if Apple decides to stockpile the metal in anticipation of a price increase. Additionally, the impact of Apple’s gold use could be magnified if another economic crisis drives investors to hoard gold. So while it’s not clear that the Watch Edition will cause a gold supply crunch this year, the device could have a noticeable effect on gold prices in the years to come, especially if the Watch Edition proves to be as popular as Apple’s other hit products.

Follow Nathanael on Twitter @ArnoldEtan_WSCS

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