Almost two years ago I published the first article (here) in what will over time become a small series -- Gold & Watches, #GoldPlusWatches -- and you can find it here. If you have not yet read it, then I suggest to do it now and if you read it one or two years ago then... let me put it like this: reading or re-reading it is probably not the ten minutes you spent worst this week -- and I claim that, even I probably dont know you and I am not promoting a change in your time-management. Haha. So, why reading it makes sense? It outlined in short the price development aka price-explosion in gold that took place in the ten years between 1970 (USD35) and 1980 (>USD800) and to have this in mind is essential to understand the big lines, the trends and moves in horology and the following text.

The price development of gold in these ten years is probably one of the two most important single factors to understand the changes and dynamics in the watch-industry: the other being quartz. And when you ask me whether quartz or the gold-price had a more sustainable and more relevant effect on the watch industry I am quite sure it was the gold-price explosion -- just to put it into relation. Even more, without taking it into account, one stands with wide open eyes but clueless in front of the industries history in its most vibrant and revolutionary phase -- the 1970s and 1980s -- and is completely prone to folklore and romantic tales in a boutique, watch fair or horological club. Indeed, taking the gold-price into focus allows to understand horological-history and -developments without using colorful (historical) marketing-material and anecdotes. One may be surprised how much explanatory-power this simple single-factor (price of gold between 1970 and 1980) has. And even more one may be surprised why it was not yet taken into account like this, before.

So, this second part will show the development and put it into relation to the watch industry and a future third part will enlighten some of the implications -- and I am not shy to claim both texts will make some adjustments to your view on watches and horology.

OK, OK, lets go and jump right into it: In a heavy solid goldwatch like a late 1960s premium Omega Constellation or a Rolex Oyster with goldbracelet the value of material (ie. gold) is approx one quarter to one third of the catalogue-price and this is true even today (again). Now, lets assume this situation in 1970 when gold was priced USD35 per ounce. A heavy goldwatch with a total weight of 130g holds two to three ounces pure gold -- lets assume 2.5 ounces or total approx 80g and thus a material value of USD87. The catalogue price of slightly less than USD300 makes the product victim to arbitrageurs and the smelter when the price of gold moves up to USD120 or more -- needless to point out this 3.5-folding of the price happened several times in this 10y-period as the move from USD35 to USD800 is a 22-folding with very high volatility (variance of the price). And it is also needless to point out that the watch-producer loses motivation of further production of such products way before the price hits USD120 as the others costs besides the gold (ie. labour, other materials, 3rd party products & parts, investments etc) are of course a substantial part that has to be covered.

Well, thats it. All that is basically enough to derive the reactions of the watchmakers and to project the developments:

• Prices of heavy gold watches rise even more than the price of gold because the producers will include a margin to be protected from gold-arbitrageurs and -smelters. Sure, as no one wants to update prices more than every 6 months for a luxury product.
• Watchmakers will try to reduce the impact of this single factor gold-price by reducing the amount of gold used for their products: either by making luxury-watches from steel or by reducing the size and weight of the gold-watches.
• A significant portion of the stock of such heavy gold-watches found its way into the smelter -- in the late 1970s but even more in the 1980 when not only the inflation adjusted price of gold was higher than today but also these heavy pieces were as far away from the trend as possible.

Nice. Now, lets check that in short now and in detail in part three later: Sure, the time of heavy gold-watches is over by the late 1960s and for sure early 1970s, right when the price explosion kicks in -- it is indeed a misunderstanding by not taking the above-said into account that the heavy gold-watches are products of 1970s. I will harden this with some nice examples but not today, no but in part III maybe. The watches became smaller and lightweights especially in the second half of the 1970s compared to the mid- and end-60s pieces.

Besides this I am quite sure that the use and promotion of steel as an adquate material for luxury-watches by the manufacturers like AP (Royal Oak, 1972), IWC (DaVinci & SL-Line, 1973f) and JLC (Master Mariner, 1973) and later Vacheron (1976) and Patek (Nautilus, 1977) is no accident -- by the way, a trend that is imminent until today.

OK, part too is two long. More in part three.

Ad 1) "Cum hoc ergo propter hoc" I want to exclude for the sake of simplicity for now. Hahaaa.