Gold price may carry on rising, says Abbeycrest

Simon Ashton, executive chairman of the Leeds-based company, said it was working hard to switch from mass market jewellery to design-led pieces with less gold content as the price of gold continues to rocket.

Speaking to the Yorkshire Post, he said: "Nobody knows what will happen to the price of gold in the future.

"As a business we have got to assume it will go up but it's fine if it doesn't."

The company, which designs and manufactures jewellery, saw revenues increase by five per cent in the six months to August 31, but it made a pre-tax loss of 500,000 after its mass market Essentials group was hit by faltering consumer confidence and rising commodity prices.

Whilst the Brands division showed a marginal improvement in profitability, the group's pre-tax loss before exceptional items widened by 220,000 to 460,000 as operating profits from the Abbeycrest Essentials division reduced by 300,000.

Mr Ashton said the less price-sensitive luxury market and the more recession-proof Asia-Pacific region were leading the recovery in the global jewellery market – areas in which the company's strategy is "clearly focussed" but where the group has yet to establish a material market presence.

Last year the group decided to quit the most price sensitive areas of the market and focus on a reduced customer base, with fewer products and a greater degree of product branding

He said: "We are making slow progress in taking our brands division forward – it's going to take a couple of trading cycles. If we can ride this storm it all seems to be getting better but it is no picnic out there."

He added: "You don't go from the mass market into the higher end design-led area of the market overnight. There needs to be a change in attitude to our brand and product.

"We have now got to make what we sell rather than sell what we make. We have been carrying out a lot of research into what people want."

Abbeycrest has been hammered by the surging price of gold over the past 18 months, caused by the flight to safety among investors.

The average gold price for the period was 788 per ounce, compared to 596 over the equivalent period in 2009. Last night the price stood at 849 per ounce.

Mr Ashton said: "People still aspire to gold but it doesn't have to be 100 per cent gold. The market will follow that because that is what they can afford."

He added that Christmas would be key in determining the success of its current financial year.

"Nobody is going to predict Christmas," he said. "Our products are an indulgence purchase. We have pulled our business back and so I believe that we are well positioned to be able to cope with Christmas whatever happens."

He added: "The board believes that the group's performance has now stabilised sufficiently to ensure that it will benefit incrementally as the effects of the recent restructuring are felt and the strategic shift to design-led product gains traction."

Abbeycrest's operating loss before exceptional items was 100,000 compared to a profit of 200,000 over the same period last year. The group reduced its net debt by 14 per cent to 7m.

Abbeycrest reached a deal with its Thai lender over working capital facilities in August after announcing it had breached profitability covenants with its senior lender.

Abbeycrest Thailand, the group's wholly-owned subsidiary, agreed an increase of 2.1m to its seasonal working capital facilities with Siam Commercial Bank.

Analysts' call to be realistic

Gold is still an attractive prospect for investors but they should have realistic expectations on how much higher the price could rise from here, according to analysts.

Martin Payne, divisional director of Brewin Dolphin's Leeds office, said limited supply and big demand continues to support the price of the yellow metal.

The financial crisis, falling stock markets and fears of a double-dip recession have triggered a stampede for gold – the traditional safe haven during times of uncertainty.

Mr Payne added: "It may be a lower risk investment but that does not mean it is no risk, while there are the same risks attached to buying shares in gold companies as you would find with any other shares."