What Can A Gold Rolex Tell You About Apple Watch Edition?

As we get closer to the April release of Apple Watch, there has been a ton of talk on the pricing of the 18-karat gold Edition edition. A lot of people have been hopeful that the high fashion versions wouldn’t command a high dollar price, but there’s very little possibility of that, based on how Apple is marketing this wearable as a worldwide fashion phenomenon. The obvious comparisons here are well-established Swiss brands, who seem to be equal parts dismissive and terrified. Tag Heuer President Jean-Claude Biver expects Apple Watch to have the biggest impact on the “sub-$2000″ luxury watch market, but other analysts are suggesting that you’ve got to go a little higher up the ladder.

According to John Gruber, you shouldn’t be surprised to find that $10,000 could be the starting price for Apple Watch Edition:

I can see which way the wind is blowing. For months I’ve been asking friends who might know — or know someone else who might know, or even know someone who knows someone who might know — whether my guess of $5,000 is too high for the Edition starting price. The answer has always been “No”. But the way I’ve been told “No” has given me the uneasy feeling that I’ve been asking the wrong question. I should have been asking if $5,000 is too low.

I now think Edition models will start around $10,000 — and, if my hunch is right about bands and bracelets, the upper range could go to $20,000.

That sounds like an outrageous amount of money, and I’ve been trying to understand the rationale behind it. (Some analysts, like this guy, are claiming a $950 Edition MSRP, which is just as outrageous and infinitely less likely.) I’ve been having a lot of conversations on Twitter with a lot of people more familiar with the luxury world than I am, and recently gleaned some perspective by way of one of my favorite people, Horace Dediu. He sent me this 2006 article about the amount of gold in a Rolex President. It explained everything.

The solid gold Rolex watch is really a thing of beauty. The typical gents Rolex President looks rather impressive due to its obvious mass and weight not to mention the price tag that goes with it. But did you ever really wonder what the actual gold value is in a Rolex President? Below we have taken an 18kt. gold Rolex and have removed the movement, the crystal and other non-gold parts. We weighed each part using a laboratory grade scientific balance. We are sure you will find the results very interesting. All values were based on the spot price of gold at $400.00 per troy ounce.

All precious metals are weighed using the troy system. One troy ounce contains 31.1 grams of a particular precious metal. There is 480 grains in one troy ounce. If the spot price of gold is $400.00 per troy ounce, the value per gram would be $12.86. Using these standards, the actual gold value in the Gents Rolex President would be $963.27.

As a reminder, the Rolex President is actually an 18-karat gold watch. 18-karat gold by definition is comprised of 75 percent of pure 24-karat gold mixed in with other alloys for strength and durability. This report was simply investigating how much 24-karat gold was being used in the 18-karat gold Rolex in question. In 2006, its value, by weight, was just under $1,000. Adjust that value to today’s price ($1206.81 per troy ounce) and you’re right around $3,000 in gold alone. That much gold looks like this:

It gets even more interesting when you look at how much a Rolex President sells for. Brand new ones seem to sell for between $18,000 to $32,000. In the pre-owned market, we see a much different story, with some models selling for under $10,000. Why so many huge price differences? It’s definitely not the amount of gold. Instead, it’s simply a combination of condition, repairability, jeweling, and depreciation. Not all Rolex watches hold their value in the short term. Most seem not to, actually. Rolexes, kept wound and sound inside your safe might hold their value or go up in price over time. They are hedges more than investments. Still, even the cheapest of these used watches are being sold for 2.5 times the value of their actual gold content, while the most expensive new models approach 10 times the price of their gold alone.

Of course, we don’t know how much gold is being used in Apple Watch Edition, but well-considered estimates put it at right around 23 grams for the 42mm version’s case sans bands. Using the same formula, we can peg the value of pure gold involved to be somewhere between $800 and $1000. That’s about a third less gold than what’s inside a Rolex President, but that doesn’t necessarily mean that the final MSRP of Apple Watch Edition would be (or even should be) one third of the new Rolex price. After all, Rolexes feature intricate, in-house movements, machined in small batches and assembled in a generally time-consuming fashion. If you remove the movement from a Rolex, it is worth quite a lot more than the mass-produced circuit board and sensors inside Apple Watch. Remember, the Editions use exactly the same guts, screen, battery, and sensors as the “cheap” Sport versions. There is no retained value to speak of in the electronic aspect of Apple Watch, while Rolex movements alone can be worth thousands of dollars. But the main point is that there is significant built-in and expected depreciation in the luxury watch market, and the argument that Apple Watch Edition couldn’t sell at $10,000 (or more) because luxury buyers buy with “investment” in mind is totally false.

Still, I think it actually hurts Edition if it starts at $10,000. If I buy a 20-year-old gold Rolex, it still tells time and functions just as well as a brand new one. But 20 years from now, am I going to buy a first-generation 18-karat gold Apple Watch Edition? No. Because there’s a strong possibility that it simply wouldn’t work any more. Either its battery won’t hold a charge, the Digital Crown’s moving parts would be broken down, or the connectivity standards will be long since deprecated beyond modern support.

You can argue that Apple Watch Edition is not a tech product, that it’s a fashion-first product based on status and spending. But at the end of the day, it’s still a product that will be less functional within a couple of years and possibly obsolete within five. That’s what has so many of us confused.

And comparing Apple Watch Edition to Rolex Presidents brings up another interesting — and potentially disappointing — wrinkle in our pricing expectations: It occurs to me that there are a lot of stainless steel Rolexes on the market with MSRPs into the several thousands. I’m not sure that bodes well for the stainless Apple Watch line. By the luxury market’s standards, Apple could very well price these steel, sapphire, and ceramic mashups past the $999 mark.

I guess I better try to take a shine to the matte aluminum Apple Watch Sport after all.