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Gold up 4%, silver 6.3%, jewellery stocks fell

Share prices of jewellery companies fell today following RBI's new norms of gold import

Rajesh Bhayani  |  Mumbai 

Gold prices have crossed Rs 3,0000 mark per 10 gram, up 4% in Mumbai’s zaveri bazar today and closed Rs 30,695 following sharp spurt in international prices and weak rupee against the dollar.

Along with that silver also went up 6.3% close at Rs 49,980 per kg though intra day it was trading above Rs 50, 000. Gold has seen 8 month high while silver is trading at 4 month high. Such a huge jump is highest in 2 years.

At a time when yellow metal prices have been on the rise, share prices of jewellery companies fell today following RBI’s new norms of gold import which has allowed banks to imports gold on consignment bases but jewellers will have to pay full amount to buy gold which means the lease route for jewellers has been blocked by the RBI.

This move will raise cost of funds for jewellers directly hitting their margins badly.

While the price increase follows jump in prices yesterday after gold crossed $1350 mark which was technical resistance and prices also went up amid current geo-political tensions on a rise and mixed data in the U.S is generating an environment of uncertainty when the Fed may taper its bullion friendly bond buying program. Ambiguity over the same is supporting precious metals

Sugandha Sachdeva, AVP, Research (metals) at Religare Securities said that, "Gold prices posted strong gains today after a report from WGC stated that China's gold consumption may soar to a record 1,000 tonnes in 2013 and India's gold demand may witness a surge amid festival and wedding season in the country, which is round the corner. Rupee weakness further added to upside witnessed in domestic prices , wherein it plunged to a record low of 61.9850 in spot market.”

World Gold Council (WGC) has been bullish about annual demand. “The government’s controlling measures have escalated only dullness in the lull demand season. However, it would be interesting to see how do they impact during the peak demand season in the third quarter. But, given that the government’s priority is CAD, there will definitely be a short term impact of these measures on gold demand. For the full year, however, we are convinced that total gold demand to remain between 900-1000 tonnes this year,” Somasundaram PR, managing director (India), World Gold Council.

Even RBI’s Wednesday night new gold import norms announcement raised concerns that gold will remain in short supply and hence gold in physical market was continue to trade at Rs 800-850 per 10 gram premium to the landed cost of the commodity.

The stock prices of jewellery companies nosedived today following withdrawal of ‘gold on lease’ facility by the RBI as jewelers cost of funds will go up sharply due to this. Shares of Titan Industries Ltd fell as much as 12% to close at Rs.240.6. Titan has already stopped selling coins a month ago.

“This, once again, raises the specter of increasing interest and hedging costs for jewellers. Titan’s fiscal year 2014 and fiscal year 2015 earnings per share can potentially face a 6.25% and 12% cut, respectively,” analyst Abneesh Roy of Edelweiss Securities said in a note to clients.

TBZ, Shree Ganesh jewellery, PC Jewellers all were down 6-8%.

First Published: Fri, August 16 2013. 18:35 IST