If you have been browsing around for different watches online, you have probably found that the difference in price between a watch in steel and the exact same model made in gold is huge.
This has probably got you thinking about whether the actual gold value in that watch reflects the huge increase in price. And the truth is, it doesn’t.
Now, if we put it that way, it may seem like we have exposed some kind of secret about the watch industry, but really, this is nothing new. In fact, this huge difference between gold watches and their steel counterparts has existed for a long time, and there are several reasons for this that we are going to look closer at in this article.
First off, to give you some perspective, the total value of the pure 24kt. gold in a Rolex President is approximately $4951. This is the 24K gold value based on a 24K gold value of 53 USD.
A Rolex Submariner reference 126610LN in stainless steel costs €8.700. On the contrary, the same model in full 18k gold is €35.200. It’s safe to say that the actual gold value in the gold watch isn’t €26.500. Based on a gold price of €50, this would mean that the gold weight would be 530 grams. Which we know isn’t the case since the watch doesn’t even weigh 530 grams, and the movement and dial also have some weight to them.
In other words, the gold value is not proportionate with the increase in its price. So why are gold watches so expensive?
The difference between gold and steel is ”industry standard”
The first answer is that the huge price difference between gold and steel watches is an industry-standard. Watchmakers and brands have for a long time kept the prices of gold watches high, and because there are several benefits of this, the watch brands have no real incentive to lower the prices of gold watches.
This is not only the case for watches but more or less the jewelry industry as a whole.
It makes them more exclusive
A gold watch is meant to be something exclusive, special, and unique. With that said, the price should reflect that. Giving gold watches a much higher price tag than steel versions makes them so much more special and reserved for a much smaller target audience. When you are spending substantially more for a gold watch compared to a steel watch, most people also want to feel that they are wearing and owning something truly special. Much of this has to do with status.
They have higher profit margins
One of the explanations is that gold watches, in general, sell slower than stainless steel counterparts. As a result, it makes sense to have better margins on these products for when they sell to compensate for the longer selling time. Now, with some brands, such as Rolex where the demand is huge, gold watches tend to sell quite quickly as well, but because they are more niche, and because they are more expensive, they tend to be slower to sell compared to steel. In addition, the case for Rolex is not the case for most watch brands today.
There is no denying that the watch brands have higher profit margins for gold watches, but it is not necessarily because they are ”greedy”. It’s important to keep in mind that gold is of course quite expensive to buy and stock. And naturally, watch brands need to buy a lot of it. And of course, the cost of buying the steel compared to buying the gold is quite substantial, even for a large watch brand. Therefore, the making of a gold watch requires greater investments for the watch brands compared to when making steel watches. From the time they buy the gold up until the watch is sold, the watch brands are not making any money. Therefore, part of the high price of gold watches can be seen as a need for a greater return of investment, thus in the form of higher prices.
Production costs
The actual gold material is not the only thing that affects the pricing of gold watches, as you can see with the huge discrepancy between their prices. When it comes to gold watches, there are also, in general, additional production costs compared to steel watches.
First and foremost, the production numbers of gold watches are normally much lower than the production of steel watches. According to the basic principles of manufacturing, the higher quantities of a product that is manufactured, the lower the price per unit. Because of this, manufacturers tend to get a higher manufacturing cost for gold watches.
In addition, manufacturing gold watches can also be more complicated than manufacturing steel watches, with potential additional steps required in the finishing.
When it comes to gold watches, we also need to take into consideration additional parts of the production chain for gold watches from start to finish, which includes things like transporting the gold safely, storing gold and finally transporting the gold watches to the final point of sale.
Last but not least, we also need to take into consideration that when a gold watch is milled and polished, there will be leftover gold in the form of ”waste”. Depending on the production method, some manufactures may try to save as much as possible of this waste, but this is not always possible. Therefore, it will require a bit more gold than what is in the final product.
Fluctuating gold costs
Gold prices also fluctuate substantially more than steel prices. This makes it more unpredictable to price gold watches for the brands. In fact, it is not completely uncommon to see brands increase the price of their gold watches as a result of increased gold prices on the market.
Manufacturers need to consider the fluctuation of gold prices when pricing their watches to have safety margins.
Think about steel watch pricing
Something we also want to mention that we think is highly interesting is that as soon as we talk about gold watch pricing, some people start to question the big price increase. But we also need to remember that luxury objects are not like most objects.
For example, if we talk about a stainless steel Rolex Submariner reference 126610LN which, as mentioned, costs €8.700, it also makes sense to calculate the price of steel. As you can imagine, the price of the steel used for this watch is only a small fraction of the total price of this watch. In other words, you are not paying for the actual material. You are paying for so much more. When it comes to luxury brands, you are paying for the quality, the prestige, and perhaps most importantly, the brand and the exclusivity that comes with it.
Therefore, when we talk about the watch gold prices, we need to also talk about the price of their steel counterparts and the pricing of steel to get a fair picture. And with that equation, the fact of the matter is actually that you get more value for money when you buy a gold watch since the actual gold carries value, as opposed to steel watches.
Conclusion
Obviously, the huge difference in price between gold and steel watches is mostly due to increased margins. But as you can see above, some additional explanations are part of the equation in the higher pricing for gold watches. These reasons do not logically explain the price difference, but it is part of the reason that gives a more accurate picture of gold watch pricing. Most importantly, it has to do with the prestige and exclusivity and gold watches, but also that manufacturers want to have greater margins for these watches, for the numerous reasons explained above.