The new Apple Watch (Nasdaq: AAPL) won't just be the most sought-after gadget of the year. It's shaping up to be the world's biggest gold price catalyst of 2015.
The high-end version of the Apple Watch, the Edition collection, launched today (Monday) and goes on sale April 24. It will have a case made of 18-karat solid gold and start at $10,000.
And Apple thinks it's going to sell a boatload of them.
According to Wall Street Journal estimates, Apple plans to produce as many as 1 million units of the Edition each month.
If some of the sales and gold content projections are correct, the gold Apple Watch could soon gobble up nearly a third of the world's gold production.
That much new demand would be the biggest gold price catalyst we've seen in years.
Apple Watch Would Rank Among Biggest Gold Price Catalysts
Let's put this in context.
The largest buyers of gold in the world are China and India. In 2014, India consumed a total 842 tonnes of gold. China was close behind at 813 tonnes.
Yet Apple may soon rank in 3rd place, potentially consuming as much as 746 tonnes a year for its gold Watch.
While that number borders on the shocking, it isn't inconceivable.
The Wall Street Journal estimate equates to 12 million units annually, supported by strong demand from China in particular.
Josh Centers of TidBits calculated that each Apple Watch will contain two troy ounces of gold. Annual sales of 12 million units, times two ounces, equates to 24 million ounces - or about 746 tonnes.
That takes into account that the Apple Watch will be 18K gold, which by definition means it will be 75% pure. (Pure 24K gold is too soft for a watch. Apple is thought to be mixing in low-density ceramic particles rather than other metals as other manufacturers do.)
But in a more modest scenario, the Apple Watch figures to be a major gold price catalyst....
Less Gold Is Still a Lot of Gold
Given the potentially high price tag on the Apple Watch Edition, I think it's fair to assume more limited sales. On that basis I forecast annual sales of 3 million Edition units.
Greg Koenig, co-founder of Luna Labs, used measurements of a 3D model of an Apple Watch to estimate it would use about half as much gold as Josh Centers calculated.
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That gets us closer to three-fourths of a gold ounce per gold Apple Watch.
So 3 million units, times three-fourths of an ounce per watch, represents demand of 2.25 million ounces of gold. That's 70 tonnes of consumption annually.
While that may be a far cry from the much loftier estimate of 746 tonnes, I believe it's also more realistic.
But even 70 tonnes of new demand from a market that only sees annual mine production of some 3,000 tonnes is significant.
Considering the weaker gold prices of the last 3½ years, expect gold production to plateau or even decline as unprofitable mining operations are curtailed.
Combine that with a highly successful gold Watch from Apple and you get a perfect storm of limited supply and quickly increasing demand.
As a gold price catalyst, the Apple Watch is just what's needed to jolt the market.
At the same time, gold investors shouldn't imagine the Apple Watch is a good way to invest in the yellow metal.
With Apple's high margins, you'd be overpaying for your gold. But if you invest in gold by other means, you'll be able to catch the gains that demand for the Apple Watch will bring.
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