The Apple Watch Edition might be Apple’s most unusual product in years. Questions abound about the 18-karat gold smartwatch. How much will it cost. Will Apple offer an upgrade path for it?
But I have a broader question: how will it affect the world’s gold supply?
The Wall Street Journal has reported that Apple plans to ramp up production of the Apple Watch Edition to over 1 million units per month in its second quarter of production. That’s an unbelievable number of gold watches, especially considering that they could cost as much as $10,000 each. Could this number be realistic?
For the sake of argument, let’s assume that each Apple Watch Edition contains 2 troy ounces of gold (Apple Spotlight estimates 50–75 grams in the Apple Watch Edition; 2 troy ounces equals 62.2 grams). Now, 18-karat gold is only 75 percent pure, because pure gold is too soft for everyday use, but for easier math, let’s also assume that 75 percent still uses 2 troy ounces of gold. (Even if Apple uses only 1 troy ounce, halving all the numbers below, they’re still huge.)
If Apple makes 1 million Apple Watch Edition units every month, that equals 24 million troy ounces of gold used per year, or roughly 746 metric tons.
That’s enough gold to make even a Bond villain blush, but just how much is it? About 2,500 metric tons of gold are mined per year. If Apple uses 746 metric tons every year, we’re talking about 30 percent of the world’s annual gold production.
That’s a sobering thought, but it’s not entirely unbelievable: Apple has a tendency to buy up so many resources that competitors can’t keep up, and it certainly has the cash to do so. But gold is different from aluminum, say, in that it’s a precious metal. Although currencies are no longer backed by gold, governments still hoard it as a “store of value ” and as part of the guarantee of a financial system. The Federal Reserve Bank of New York stores about 7,000 metric tons of gold in its Manhattan vault. all owned by governments, banks, and international organizations. It would take Apple less than a decade to turn all of that gold into watches.
Speaking of vaults, where exactly would Apple store all of this gold? (Besides in a Scrooge McDuck-esque money pit at the very center of the new circular Apple campus.) At today’s price of $1,200 per ounce, Apple’s annual gold needs would be worth $28.8 billion dollars. Granted, it may not hold all of that on hand at any one time, but talk about a supply chain nightmare. Moving that much gold means a high risk of shrink, an industry term for vanishing product. Not to mention the risk of attacks by dragons and SPECTRE.
Meanwhile, while Apple’s annual gold supply alone would be worth $28.8 billion, luxury watchmaker Rolex sells “only” $4.7 billion of product every year, from an estimated 600,000 watches.
There are two conclusions we can draw from this smattering of data. The first is that Apple is about to take over the world. Not only will it be the most valuable company on the planet, but it will also be bidding for a third of the world’s annual gold supply, wreaking havoc on gold prices and doing who knows what to the global economy.
The alternative is that the esteemed Wall Street Journal is off on its Apple Watch Edition sales by an order of magnitude (or more). That would put the number at 100,000 per month, which seems more plausible.
Don’t get me wrong, it’s never safe to underestimate Apple. If anyone can sell 12 million $10,000 quasi-disposable smartwatches a year, it’s Apple. But once you run the numbers, it sounds nuts. Estimates from Watch-Insider.com put the annual unit sales of high-end watches made in Switzerland and Germany at about 27 million in 2013, and another industry site, W The Journal, reported that all of Switzerland exported about 29 million watches in 2012. Could Apple push up against 45 percent of the entire current luxury watch industry?
Even at 100,000 per month, or 1.2 million units of the Apple Watch Edition sold annually, that’s still a lot of gold — 2.4 million troy ounces or about 75 metric tons. That won’t throw such a big wrench in the global gold market, but it will still have an impact.
I may buy a gold coin or two, just in case.