Financial Crisis USA; 0.2 Gold Price Collapses

Date: Oct 22, 2008

More and more interesting things starting to happen as we see US economy stumbling. Latest of all from businessweek is the plunged Gold price per ounce.

In this post I am going to relate the effect of market condition to my close venture, FAARO Jewelry.

The news was Gold price went down to $735/oz 13 month low (Businessweek.)Caused by stronger dollar created with high demand for dollar and the fear of global recession. As global recession fears have create huge fear in investors mind to cause another big loss for DOW Jones Index average.

Lets talk about the effect of this to our venture, FAARO Jewelry. Direct effect we experienced at FAARO inc. is where we use gold at first, which is FAARO manufacturing facility in Sri Lanka. Although this facility is located in Sri Lanka changes in Gold price at NY stock exchange are very well reflected in SL gold market. But FAARO buy gold at whole sale price from trusted suppliers, who would take several days to reflect this change in gold prices in their actual gold wholesale price. If we assume the wholeseller also reduce the Gold price to reflect the drop to $735/oz., at FAARO facility we can purchase Gold at lower cost with these conditions. With FAARO's FIFO inventory valuation method these changes will be very well reflect in Cost of Goods sold.

From managerial standpoint of FAARO, the drop in Gold cost will give us as option to cut back on our production cost of Jewelry (Gold jewelry, in particular.) With metal cost representing 43% of the cost of goods sold, this drop will make a big difference.

Overall, change in gold prices are not only helping FAARO jewelry buy gold at lower cost but it also create an opportunity for FAARO with the option of reducing production costs and cutting back on prices to better suit for slow economy.

I would really like to hear your comments about the today's topic; Gold and its implication to FAARO Jewelry. Please dont forget to leave your thoughts.