Heads you win, tails I lose. The world's biggest jewelry retailer is suffering from demand for gold both rising and falling.
Chow Tai Fook warned Friday that profits for the six months to Sept. 30 would be lower than last year because of slowing sales of its mostly gold jewelry and a rising gold price too.
A hedging strategy meant to limit the impact of fluctuations in the price of gold is a key concern. Hedging the cost of gold inventory makes some sense if it works properly—sales of gold jewelry made up 53% of the company's revenue last year. But the jeweler says mark-to-market accounting rules mean the hedges—gold loans and forward bullion contracts—will shave up to 3% off gross profit margins. Instead of reducing volatility, the hedges actually had the opposite effect.