Apple Inc. (NASDAQ:AAPL) may be big, but some of the rumors surrounding the release of the Apple Watch make it difficult to understand how big the public thinks it is. Back in February a rumor emerged that, if the Wall Street Journal‘s production numbers were right, Apple would need to buy 30% of the world’s gold this year.
The myth was ridiculed in some places at the time, but it’s still persistent in comment sections, and other discussions of the sales of the Apple Watch. Here’s a look at how ridiculous that number actually is, and why everyone should stop using it right now.
Apple gold ambitions
To see the real problems with the 30% calculation, if they’re not immediately obvious, you need to understand its source, a back-of-a-napkin calculation by Josh Center at TidBits. He estimated that Apple was going to be making 1 million Apple Watch Edition units per month, and a number that the Wall Street Journal reported as a rumor.
He went on to assume that each Watch would use 2 troy ounces of gold, about 62 grams. That resulted in pretty clear numbers, 24 million troy ounces per year, or a total of 746 metric tons of the stuff, just in the Apple Watch every single year. That’s assuming that Apple production of the Watch Edition doesn’t increase in 2016 or beyond.
With around 2,860 metric tonnes of gold produced in 2014, that leads to a belief that Apple will buy up 30% of the world’s gold production.
These numbers are wrong
The price of gold has fallen in 2015, and jewelry only accounts for about half of all demand for the yellow metal. The price of the premiere Gold ETF the SPDR Gold Trust (ETF) (NYSEARCA:GLD) has been on the downswing since 2013.
If there was a supposedly 30% increase in demand, the price would be spiraling out of control. Let’s have a look at some of the numbers in that calculation a little more closely.
62 grams of gold is a huge amount. The Apple Watch Edition case weighs 69 grams on its own, including all of the electronics, the battery and the screen. There is no gold bracelet on offer, so 89.8% of the Watch face would need to be solid gold. With 18k in use, that’s physically impossible.
1 million Apple Watch Editions is an absurd number. KGI securities analyst Ming Chi Kuo reckons that just 1% of the preordered Watch units was an Edition. 1 million units at a price of $10,000 each would add 120 billion in revenue per year. Apple’s 2014 revenue was $182 billion.
Apple can’t afford the gold
If Apple were to start buying gold like that, the price would run up, and the company would run out of cash, even with its massive stockpile, before the world filled its order.
The company couldn’t do it anonymously either, that’s not how the market works. The Watch Edition is going to sell a lot of units, and Apple fans should be pleased with the company’s latest device.