Gold Futures In The Jewelry Inventory Management Application

To avoid inventory for any manufacturing or trading company is difficult. Commodities like jewelry, which provides the consumer emotional feelings remarked by individual personalities, require more choices for design, and therefore more inventories. In addition, jewelries have relatively high values. Because of these features, inventory composes the most important assets in the balance sheet of a jewelry company.Normally, gold and precious stones like diamonds compose the biggest value of jewelry inventory. However, gold price which is decided on the financial market is never stable, and diamond price also fluctuates. These price fluctuations cause risks for the value of the jewelry inventory, and can possibly jeopardize the business of the company.On current background of financial crisis, gold and diamond prices are more likely to fluctuate. As luxury goods, gold and diamond markets are the first to suffer from economic recession. Consequently, the management of the value of the jewelry inventory gets more important.This paper investigates how to manage jewelry inventory with gold future contracts as tools, thus to achieve the goal of avoiding risk and increasing profit, and analyzes and verifies the effects and risks with empirical approach.For the purpose of getting close to reality, before using gold future for the research, this paper firstly emphasizes on the investigation and analysis of the two factors directly acting on the risk, which are the fluctuation of gold and diamond prices and the inventory turnover period of jewelry companies.The analysis of fluctuation of gold and diamond prices is based on supply-demand theory. By method of qualitative analysis, the principal aspect of supply and demand which decides the prices is found out.The analysis of inventory turnover period is carried out by method of case study. The inventory turnover period which fits the study object of this paper is disclosed by comparing the results of the two case studies.By using the methods above, the followings can be concluded:1. Among jewelry inventory, the none-precious-stone products and diamond inlay products have gold and diamond compose from 75% to more than 95% of the value. Therefore the value of gold and diamond is highly related to the value of the jewelries, and therefore fluctuation of the former causes remarkable risks for the latter.2. The financial market including changes in government reserves is the leading factor that influences gold price. The financial market varies from minute to minute, and the gold price is never stable. Therefore the gold value contained in the jewelry inventories is an important risk factor, and thereby an important aspect for the management.3. Supply is the major factor to decide diamond prices. In most of the time, diamond suppliers are able to control the global price. This leads to a generally stable increase in diamond price. Therefore, management of diamond value is relatively less important. In addition, the financial tool for such purpose is not yet universally available.4. To hedge gold price for jewelry inventory can accurately and effectively avoid risks caused by gold price fluctuation. The operation is simple, and commission charge is negligible. So it is worthy to be applied even during period when gold price is relatively stable, and becomes a routine work of jewelry companies.5. On condition of affordable risks, jewelry companies can speculate on gold price within a limited scale. One should have long position when expecting gold price to increase, and have short position when expect gold price to decrease. This paper has also advised details such as quantity, contract type, time to close up, etc, and analyzed risks.By analyzing demonstration results, this paper concludes that managing jewelry inventory with gold future has significance for stable operation, good operability, controllability and low cost of a jewelry company.