The real value of gold in an Apple Watch

John Gruber, Daring Fireball, in his post 'The Price of Gold: $1,200 Per Ounce':

Every time I write about the gold Edition models of Apple Watch being priced at $5,000 to $10,000, I get flooded with emails telling me I’m off my rocker. Here’s the thing. Gold has cost well over $1,000 per ounce for the last several years. Right after the 2008 recession it shot up close to $2,000 per ounce. Apple has stated that the Edition models of Apple Watch are not gold-plated — they’re solid 18K gold. The cost of the gold alone will be several thousand dollars.

 

I don’t know what it’s going to cost. But if you think it’s going to cost $1,000 or less, you’re the one who’s off your rocker.

John is correct. Anyone that thinks that a gold Apple Watch will be less than $1,000 is simply wrong. But let’s explore the real value of gold in an Apple Watch - and then dive into my best guest for pricing. 

The value of material To start, a couple of clarifications. First, the spot price of gold is $1,200 per troy ounce, not per ounce as stated in John's headline. Second, yes the Edition model is "solid 18K gold". That, however, is not the same as the gold referenced at $1,200 per troy ounce. 18k gold is .75 finess, or 75% gold (other metals are mixed in for various reasons, such as to increase hardness).

With that said, a while back I ran some numbers on the value of gold in an 18k Apple Watch (details in my post here):

  • 150 grams of gold: $4,471
  • 100 grams of gold: $2,980
  • 75 grams of gold: $2,235
  • 50 grams of gold: $1,490

As you can see above, the big variable is the actual weight of gold in the Edition models of Apple Watch. I think the weight will be closer to the lower tiers above (again, details in my post here).

The value of form So now we have some fairly solid numbers on value of gold in Apple Watch. However, the value of a gold object - like many things - is made up of both material and form. Anytime materials are made into products, value is added.

Take Tiffany & Co's famous ‘Open Heart Pendant’, for example. The 18k pendant in medium with a 16 inch chain retails for $1,450. Here’s the value broken into material and form:

  • $1,450 retail price
  • $175 value of material (about 6 grams of gold)
  • $1,275 value of form

And you think Apple products have high margins ;) This is a bit of an extreme, but it's a good example of the value that form can add. Heck, the pendant is only a simple form made from one material, and it doesn't do much - unlike Apple Watch.

The value of a tiny computer on your wrist Of course the value of a gold Apple Watch is more complicated. There’s the gold portion - both material and form. There’s also the computer portion - along with the software, services, updates, etc. That’s a difficult thing to put a price on. But in a way, Apple has already put a price on the computer by stating a starting price of $349. The model with the least expensive materials comes closest to reflecting just the value of the computer.

Adding it up So given all of the above, here's my model for the price of gold Edition models of Apple Watch. Just add up:

  • Start with $349 for the tiny wrist computer
  • Add $1,490-$2,235 for the gold (from the lower tiers above)
  • Add more for the value of form (think Tiffany's example above)

I'll let you fill in that last amount, but I wouldn't underestimate the value of form.

Note: Bands could be sold separately - at least as an upgrade option.

Update Greg Koenig estimates (based on some assumptions, including an average thickness of 1.15mm) that the larger, 42mm Apple Watch model contains 29 grams of gold. That's about $850 worth of gold - lower than even my lowest tier above. But keep in mind this excludes parts such as the crown and clasps on the band. None the less, if correct, that confirms my theory that the amount/value of  gold in the Edition model of Apple Watch may be lower than some have estimated.