Soaring gold prices take the shine off Christmas for British jewellers

Jewellery is often the last refuge of those whose imagination has run dry on the final Christmas Eve present shop.

Jewellery is often the last refuge of those whose imagination has run dry on the final Christmas Eve present shop.

But this year last-minute shoppers will have to dig deeper into their wallets to produce a present to impress.

As the price of gold reaches a 16-year high, experts are predicting that the British consumer's love affair with cheap, or at least affordable, jewellery is about to end. The cost of gold has risen from $387.80 (£208.83) a troy ounce (31.1035g) a year ago to $433.60 (£235.11) last week, according to New York trading figures.

Experts, speculators and investors are now looking to see if gold can break through the $440 mark, with $450 seen as the ultimate target.

The soaring gold prices have also had a knock-on effect on the cost of both silver and precious gem stones.

Silver prices have risen from £3.03 an ounce a year ago to £4.03, while selling prices for rough stones have been increased by the diamond merchant De Beers three times this year - equating to a 14 per cent rise overall.

Michael Hoare, of the National Association of Goldsmiths, said that the increasing cost of raw materials will hit prices on the high street as early as the end of this year.

Mr Hoare added: "It is the diamond price that is of most concern."

Early-warning signs of a gloomy future for Britain's jewellers came from the US last week when the Tiffany group announced that its third-quarter earnings had been slashed by £5.1m against the £16.2m takings from the same period last year. Blame for the booming gold prices was placed on the weakness of the dollar, geopolitical concerns including the instability of the Middle East and expectations of an increase in demand from India, ahead of the festival of Diwali last Friday.

During the festival, millions of Hindus commonly exchange gifts of gold jewellery, helping to make India the world's biggest consumer of gold - it imports about two thirds of the 600 tons of gold it consumes every year during the run-up to Diwali.

But traders said that many consumers had decided to buy alternative gifts this year, deterred by the high price of gold. "High prices have spoiled the peak season," Prithvi Raj Kothari, a dealer in Bombay, told Reuters.

Kamal Naqvi, a metals analyst at Barclays Capital, said that the American dollar "is the real catalyst" for the soaring gold price.

Dollar weakness, he explained, made gold, which is traded in the US currency, cheaper for investors from outside the United States.

But potential investors could do worse than pay heed to Mahatma Gandhi's famous maxim: "It is health that is real wealth and not pieces of silver and gold."

Many financial experts point to gold's performance over the past 25 years as an indicator to potential investors.

In 1980, the gold price was nearly twice as high as it is now, even in nominal terms and today's price is scarcely any higher than it was 10 years ago (in dollar terms at least), making it a worse performer over that period than both equities and bonds.