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The price of gold is at all time highs (British Pounds), which is good for H&T's business.
From latest latest interims:
'The Group purchases gold, jewellery, and watches from customers. The prevailing gold price has a
direct impact on gold purchasing as it affects customer demand. The gold price has been elevated
since March 2022. The average gold price per troy ounce during the period was £1,566 (H1’2022:
£1,445) and coupled with the impact of inflation on customers disposable income, we have seen a
44% increase in purchase values year on year. Some of this volume is yet to be processed and is
currently held in inventory at cost. '
Londoner7 - a high gold price has traditionally been beneficial for H&T.
Though I guess this might be increasingly offset by the higher price they have to pay to buy in new jewellery stock.
From what I recall in their recent updates, sales of new jewellery are becoming more significant. And in a sticky retail market, it might be tricky to pass on the full cost price increase to customers.
Lordloadsoflolly, you say, "sales of new jewellery are becoming more significant".
True, but this is only a factor within H&T's retail segment which accounted for just 17% of 2022 gross profit by sector. They address this adjustment to inventory with the following comment:
'Sales of pre-owned products represented 82% (H1’2022: 82%) of total sales by value. Supply of some
pre-owned jewellery categories continues to be constrained, particularly 14ct and 22ct gold jewellery.
This requires us to source higher volumes of new jewellery in substitution. We expect this dynamic to
persist for the time being and ultimately to reverse as the strong recent pawnbroking pledge book
growth reaches maturity.'
However, these are factors affecting H&T's business over the medium to long term, which will be reflected in share price over the medium to long term. In the short term the share price is impacted by short term effects, like the price of gold, which was the point of my post. In a relatively illiquid market for H&T shares it doesn't take much additional buying to raise the share price.
This is what Benjamin Graham meant when he said, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
Londoner7 - I think we’re broadly in agreement.
Over all, a high gold price will benefit H&T, though it’s not exclusively one way traffic.
You say there’s a relatively illiquid market for H&T. Could you elaborate on this? Short term price movement certainly seems manipulated by market makers, with the spread often expanding & contracting rapidly within the same trading day. But the FT quotes a HAT free float of 41.45m.
Lordloadsoflolly, I need to be careful in my terminology.
MMs provide liquidity in the sense that they offer bid and ask prices with a maximum volume of shares. I see a market size of 1,000 shares on this page, but I don't think MMs are tied to this, rather I think its an indicative guide for investors.
The spread represents the best ask and best bid offered by a the participating MMs. To clarify this point, looking at Friday's closing quotes, 472p - 475p, an individual MM may be offering a bid of 472p but an ask of 477p. Another might have a bid of 470p and an ask of 475p. The spread based on the offers from those two MMs is 472p - 475p. Clearly, adding a 3rd MM or a say, a 10th, offers more competition in the market and would likely reduce the spread. The MM whose 472p offer is accepted is at risk of being unable to exit the trade in a fast moving market, though given a wide spread the risk is low.
If you're a quote and trade investor in modest volumes then that's the market your in.
But there is also an order book where investors can place limit orders. In the case of H&T's Friday closing price these orders will be outside the 472p-475p spread or at a volume that is unacceptable to MMs. The order will remain on the book until the market moves in it's favour or the order times out. If you want to trade well above the typical market volume then this is where you can trade with a limit on the price you buy or sell. Incidentally, the spread can narrow dramatically when both sides of the book meet.
That's the market background though with many nuances, such as manipulating the order book with 'ghost' orders which may be used to influence the market but are subsequently pulled. But these are short term influences and of little consequence to investors taking a patient approach to building or selling a stake in a company. (I built up my current stake in H&T between May and Sept with 7 orders)
In my post I was careful to use the phrase 'a relatively illiquid market'. Given the background to the market I describe above, and the low daily volume of trades that are made in H&T shares, an individual or several trades combined, in one direction, and of a size many times an MM's quoted volume while mopping up the order book, which at times may be small, can easily result in a significant move in the share price.
Then there are algorithmic trades that for an oil company may be linked internet comment on the price of Brent, or perhaps for H&T the price of gold. I don't know what if any algorithmic trading occurs in H&T shares. Whether manual or auto trading, I don't think the movement in H&T's share price on Friday was unconnected to Gold hitting a (British Pounds) high.
I’m not convinced that was the main reason behind Friday’s rise.
The gold price was almost as high as now back in March 2023, yet HAT’s share price DROPPED about 5% during March:
https://www.royalmint.com/gold-price/