Investors poured their financial hopes into gold Wednesday, seeking security from European and U.S. debt troubles and pushing the precious metal to a record high that only complicates life for jewelry designers.

This story first appeared in the July 14, 2011 issue of WWD. Subscribe Today.

Gold gained as much as $25.80 an ounce to top out at $1,588.10 Wednesday — an increase of 29.1 percent from a year earlier.

“Without question, it makes business more challenging, particularly for items priced under $5,000,” said Greg Kwiat, chief financial officer of Kwiat and chief executive officer of Fred Leighton. “The gold content is still meaningful enough [at that price level] that in percentage terms and absolute dollar terms, the price has gone up in a way that’s noticeable to the consumer.”

Rising diamond prices have also been pushing costs up for Kwiat.

“Designers will raise the price as little as they possibly can, taking less of a margin because now is not the time to be greedy,” said Janet Goldman, ceo of the Fragments jewelry store and wholesale showroom. “It’s a good time to think about bigger stones and less gold. Semiprecious stones cost less money and things like opals give you a really big look for the money.”

Many designers are relying on gemstones and their craft to skirt the sky-high prices.

Designer Kara Ross is using 18-karat gold as an accent with sterling silver in her Gemstone Collection. “This collection is less about metal and more about the gemstone — the metal houses the stone, highlighting the gemstones,” she said.

“For me as a designer it has changed the whole playing field,” said Philip Crangi. “From a creative standpoint, I have been focusing on design and concept, not so much on precious metals. Going forward, I believe value will lie in the design.”

There’s no telling when firms that use gold will get relief given mounting debt troubles in Europe, continuing weakness in the U.S. and a slower expansion in China, where gross domestic product growth slid to 9.5 percent in the second quarter from 9.7 percent in the first quarter.

“It’s a sign that the economy is weakening,” said Andrew Fitzpatrick, director of investments at Hinsdale Associates, on the rising price of gold. “There’s a lack of confidence in the markets and gold is the ultimate safe haven. There’s certainly an element of that with instability in Europe and the whole debt issue here in the U.S. That’s creating a demand for something tangible and something that people can sort of get their hands on.”

President Obama and congressional leaders are trying to hammer out a deal to raise the debt limit by Aug. 2 or face a potentially disastrous default on U.S. obligations. Late Wednesday, Moody’s Investors Service put the U.S. “AAA” credit rating on review for possible downgrade, citing the possibility that the debt ceiling won’t be raised in a timely manner.

The pricing pressures in the jewelry market — silver prices are also creeping back up, gaining $2.51 to $38.15 an ounce Wednesday — come against a backdrop of inflation in the fashion industry. The full effect of sky-high prices on cotton and increases in labor and transportation costs are expected to become apparent in apparel prices during the back-to-school season.

Increases are coming through at a bad time for consumers, who are also facing elevated gasoline and food prices, a weak housing market and lackluster employment growth that’s brought back just 1.75 million of the more than 8.5 million jobs lost during the recession.

“Much of the slowdown in aggregate demand this year has been centered in the household sector, and the ability and willingness of consumers to spend will be an important determinant of the pace of the recovery in coming quarters,” said Federal Reserve chairman Ben Bernanke in testimony Wednesday before House lawmakers.

Bernanke said that the Federal Reserve remained ready to step in with additional stimulus should the economy need it. Wall Street picked up that message, pushing the S&P Retail Index up 0.4 percent, or 2.38 points, to 546.31, as the Dow Jones Industrial Average climbed 0.4 percent, or 44.73 points, to 12,491.61.

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