$1,600 an ounce gold pinching jewelers

When Jeff Hart began selling jewelry gold was $300 an ounce. This month gold cracked $1,600 an ounce, a run-up that is squeezing both jewelers and customers.

At the same time, Hart and other jewelers worry that a fast decline in gold prices might leave them holding high-priced inventories.

Hart, who owns Hart's Fine Jewelry stores at Independence Square and Shoppers Square, says the price of gold has doubled the cost for both wholesale purchases and retail sales. As a result, sales of gold items such as chains and bracelets have plummeted by as much as 75 percent in the past few years.

"It affects everybody," Hart says, "and it's been going on for while now."

Jewelry stores throughout the Truckee Meadows have been forced to raise their prices to offset increased costs from jewelry manufacturers. Jewelers also are being much more cautious about stocking their shelves in order to control high overhead costs as well as to avoid a potential decline in gold prices that would leave them with costly pieces crowding their display cases.

"You still have to have inventory, and I do replace pieces, but I'm not buying a lot of extra stock," Hart says.

Greg Munson, gemologist and owner of R&J Jewelers in the Smithridge Shopping Center, says the bulk of his business is creating custom jewelry for customers who bring in their own stones. But rather than buy new gold to make the mountings, Munson often melts down rings and other gold pieces he's already got in his display cases. Munson uses a computer to help create wax molds and an induction-casting machine to melt the gold.

Using the existing gold in the shop is a crucial element in cost control, and it also increases profit margins on custom work, Munson says.

"Having to order new pieces in, it is cost prohibitive. We are not buying more for stock, we are thinning out what we have and pulling things out of the showcases, melting the gold and making something new with it."

The higher cost of gold has slowed retail sales from walk-in customers at R&J Jewelers, and Munson says walk-in customers are extremely price-conscious. Rather than making impulse purchases, customers are shopping around between several jewelry stores. However, red-hot deals are scant, Munson says, because most of the inventory purchased at lower prices has already been sold or used.

"They are trying to get the best bang for their buck, but unfortunately it has been going on for so long that the old inventory that was priced at $500 gold, there are very few pieces left."

Patti Ince, vice president of Robert Ince Jewelers in the Plumgate Shopping Center, says gold was still at a government-fixed price of $35 an ounce when she started in the business. In August of 1971, former President Richard Nixon allowed the price to float.

Ince says her store also does the bulk of its business creating custom orders. More customers are bringing in old scrap gold to be reworked into fresh pieces by her husband, Robert.

About 90 percent of the revenues at Robert Ince Jewelers come from custom orders. Without special-order work, the store would not have survived the economic downturn, Ince says.

"Being in business in Nevada, especially in Reno with foreclosures and unemployment and everything else, of course it affects the jewelry business. That is a luxury item, and that is always the first thing to go. If we didn't have the service, we would not be in business today."

Robert Ince Jewelers has survived by running lean, Ince adds. The store employs a full-time saleswoman and a part-time bookkeeper, down from five full-time employees in 2005.

One way some jewelers have tried to spur sales is by tightening profit margins but that path can lead a business into a difficult financial position, cautions Craig Tolman, owner of Tolman Jewelers in Carson City.

"It is actually going to end up hurting people in the long run," Tolman says. "It takes X amount of dollars to a keep store running and pay the bills, and when you cut into profits it is a no-win situation."

At Tolman Jewelers, repairs and customer work are carrying the day. Tolman says slow retail sales may further be impacted by the projected 2012 opening of the new freeway between Reno and Carson City, which will cut commute times and could siphon off customers to larger jewelry stores in the Truckee Meadows.

Another of the fastest-growing trends in the industry is the use of alloys to replace gold. Sales of rings made from tungsten, titanium, cobalt chrome, platinum and other alloys all have helped offset the dip in sales of gold rings. The trend marks both a turn in fashion amongst men, jewelers says, as well as a way to afford a wedding band without a large expense.

"It is a niche market for people that can't afford to spend $1,000 on a wedding band," Munson says. "They can afford $150 or $200 for a titanium or a tungsten ring."

Also, jewelers say, silver, ever a faithful standby to gold, has become a more sought-after replacement as well. Even though the metal has risen to $40 an ounce, it still represents a much lower cost than gold.