Consumers go for low purity gold jewellery as rupee depreciates

Consumers have started demanding 14-carat gold jewellery that was unheard of until recently, as a depreciating rupee pegs up the domestic price of the yellow metal.

Indians normally go for higher caratage gold jewellery (above 18 carat) for a higher quantum of self-satisfaction and maximum realisation at the time of resale. But higher gold prices have made them rethink their jewellery buying plans for special occasions like wedding. And, they have started ordering lower purity gold jewellery to keep their budget under control.

“Consumers, especially in northern states, have started demanding 14-carat gold jewellery, surprisingly for occasions like wedding, which is the new trend emerging in India. Until now, gold ornaments of 18 and above purity were in demand. Because of the price appreciation, consumers have shifted to lower carat to keep their investment budget under check,” said Rajiv Popley, director at Popley & Sons, a city-based jewellery manufacturer, retailer and exporter.
 

PURITY CHECK

 

CaratHallmark
levelPrice
(Rs / 10 grams)* 241,00029,895 2395828,649 2291627,404 2083324,912 1875022,421 1458317,439 *Indicative price which may differ from jeweller to jeweller

Gold prices in dollar terms declined by 9.77 per cent to $1,573 an oz on Friday, from $1,743.4 on February 1. But in rupee terms, prices rose three per cent to Rs 29,030 per 10 gram, from Rs 28,190, due to a 12.4 per cent depreciation in the rupee value.

But the latest demand trend unveiled by the World Gold Council presented a contrasting view. In countries like Turkey and China, consumers have started shifting to higher caratage gold jewellery. In Turkey, consumers are shifting from 14 carat to 18 and 22 carat. Manufacturers and retailers are increasingly focusing on gold ornaments of 18 carat, because of higher margins compared with 14-carat gold jewellery.

Although on the face of it this shift to higher carat could be viewed as positive for gold volumes, the higher weight of gold used in 18-carat pieces was more than cancelled out by the smaller number of items sold. In the 14-carat segment, gold weights have also been affected by a shift to lower weight pieces and full wedding sets being replaced with half sets in Turkey, which consumed nearly 16 tonnes of gold in the first quarter of 2012.

In the aftermath of global economic crisis, consumers in Turkey became more prudent, preferring 22 carat pieces in light of the rise in gold prices. Although, the local market tried to offer lower carat such as eight carat, it has been considered among consumers to be an unwise choice and the attempted move to lower caratage ended in failure. Even 14 carat has lost some market share to 22-carat jewellery. Jewellers manage to mitigate the higher gold price and tighter customer budget by producing the same design with a lower weight.

China dominated the jewellery market in the first quarter, as consumers remained upgraded. The country witnessed a total gold demand of 156.6 tonnes, eight per cent higher than the corresponding period of the previous year. Rising income levels and the Chinese New Year festivities boosted the growth in demand, concentrated in the 24-carat gold jewellery segment. But demand for 18-carat gold ornaments slipped. Since gold prices remained high, consumers in the UK slumped hallmarking activity. The weight of gold items being hallmarked fell almost nine per cent in the first quarter from a year earlier.

“They can’t postpone gold jewellery buying plans for the wedding of nears and dears. Nor they can shift from gold to alternative precious metals like silver, which looks very cheap and, most importantly, had not been in trend for special occasions like wedding. Since, the yellow metal remained a preferred choice for Indian consumers, the metal continued to remain in focus in the wedding season, which constitutes 25-30 per cent of the overall gold consumption in India,” said Ajay Mitra, managing director (Asia and the Middle East), WGC. WGC data showed India’s overall gold demand fell 29 per cent in the first quarter to 207.6 tonnes, from 290.6 tonnes in the corresponding quarter of the previous year.