The sudden fall in gold prices recently has proved to be a boon to the jewellers as consumers pan India went on buying spree and as a result jewellery sales saw a huge increase of 40 to 50%, as we normally see during Akshay Tritiya and Dhan Teras (the two auspicious days for buying gold in India). This is a very positive sign for the industry as the retailers are expecting footfalls to increase in wedding and festive seasons.
Mr. Mehul Choksi, CMD of Gitanjali Group says, "It is a good time for industry. The demand was already there for the wedding and festive seasons. However, for any heavy purchase, people in India are still waiting for the prices to go down further. If this trend continues, the demand is likely to go up by 15%.”
Mr. Mohit Khamboj, the President of Bombay Bullion Association says, “Demand for wedding jewellery would always remain in India even if gold prices are high. If gold price continues to decline, sales are likely to go up by 40%."
The Indian jewellery industry has suddenly started experiencing a breeze of fresh air which was not the case just one year back in 2012. A report by Fitch in 2012 said, “The purchase power of Indian households is badly affected by a reduction in the savings rate driven by high consumer price inflation and muted wage growth. These factors have compelled them to cut their jewellery purchase budget drastically.” But the picture suddenly seems to have changed with gold prices taking a nose-dive last month. The yellow metal is said to be in the middle of correction of last 15 years, with the prices dwindling down by 16% from the all-time highs of 2012.
Footfalls in almost all jewellery showrooms in India have increased by 10 to 15 times during last month and many jewellers have ‘run out of their jewellery stocks’ due to this sudden spurt in sales. Many of them who were supposed to participate in jewellery shows during May 2013 have cancelled their participation because now they don’t have enough stock to display in trade shows!
This is the case with ‘Jewel Trendz Gem & Jewellery Show’ which was placed between 3rd & 5th May, 2013 in a five-star hotel of Indore, had to be postponed as many of its exhibitors have run ‘out of jewellery stock’. The organizer of the show Mr. Govind Verma, who is owner of ‘Jewel Trendz Group’ says, “Many of our exhibitors have requested us to postpone dates of the show on the grounds of short of jewellery pieces as a result of the sudden and huge increase in jewellery sales. Our existing exhibitors have also ensured us to participate in our show with a new date.”
“So we have decided to honour their request and postpone the show in the month of July, 2013. This price fall has proved to be positive to our show in a sense that the show now would be bigger and better with more glamour and glitter,” adds Mr. Verma.
So if cheaper gold means cheaper jewellery, is that really bad for jewellery manufacturers and retailers? Not really. Mr. Dhawal Chotai, an expert in Financial Valuation, Industrial Research and Equity Analysis says, “Lower gold prices will reduce revenues for jewellers, but at the same time lower their input costs. Notwithstanding the momentary losses on expensive stock, the jewellers are likely to maintain their profit margins, and may even increase them.”
“Lower gold prices may also help the general economy and exchange rates, particularly of those countries like India with high gold imports. In recent years, a major chunk of India’s budget deficit has been caused by expensive gold. A decline in gold prices is likely to reduce the gold imports, and help in lowering the budget deficits, thus reducing inflation and allow the Central Banks to reduce interest rates. Lowering of interest rates also facilitates more viable loans, thereby boosting overall demand in the economy,” he adds.
