High gold price to lower jewellery sales

Robust increase in sales of studded, especially diamond jewellery expected.

Sales of pure gold jewellery are expected to fall significantly as prices of the yellow metal are rising steadily on the back of the euro zone crisis and the ensuing economic instability.

On Tuesday, gold touched Rs 19,000 per 10 gm in New Delhi, a record, due to demand from the ongoing marriage season. Jewellery retailers, however, indicated that hardening prices would deter consumers from pure gold purchases, leading to a drop in volumes. Instead, a robust increase in sales of studded, especially diamond jewellery, could be expected in the coming months, said analysts.

“The consumption of the yellow metal will come down, but this will be good for diamond jewellery. Margins, though, should remain steady, as there won’t be much decrease in value terms. I expect an increase of 35-40 per cent in diamond jewellery sales,” said Gitanjali Group Chairman and Managing Director Mehul Choksi.

The All India Gems and Jewellery Trade Federation Vice-Chairman Bachraj Bamalwa said sales of pure gold jewellery had been flagging because of rising prices, but the renewed spike in the value of the metal could translate into another 15 per cent drop in sales volumes.

“Prices could rise further. By the end of the year, they may reach Rs 22,000 per 10 gm,” he added.

Analysts said the crisis in the euro zone, along with China’s monetary policy rejig, had left global investors confused and cautious, which resulted in gold being viewed as a favourable investment option.

“Gold prices could move up substantially in the next three-four months to Rs 20,000 per 10 gm,” Angel Broking’s Amar Singh said.

The rise in prices could also hit India’s jewellery exports. Gems and Jewellery Export Promotion Council Regional Chairman Pankaj Parekh said overseas consumers might settle for cheaper options. “Exports will suffer if the trend continues. Already, sales of pure gold jewellery have dipped in places like Dubai, which are important for Indian exporters,” he said.

The World Gold Council, in a report last month, said it “expects the gold demand to be strong during 2010, driven by growing demand for jewellery in China and India as well as an increase in the European and the US investment in the context of continued economic instability, sovereign risk and threat of a ‘double dip’ recession.”