High volatility in gold prices have dealt a double blow to jewellers as consumers are staying away from visiting shops because of the coronavirus spread. This has reduced discretionary spending as it rendered jewellery sales to almost a standstill. Also, advance tax payment has put them under pressure.
Prices continued to fall, and on Saturday, they fell further. The next 10 days will be crucial, although it is believed that demand growth may begin after a month.
Jewellers have started reducing their inventory to avoid any additional handling cost. As against 35-45 days of stocks jewellers earlier, they are just building stocks for seven-10 days to protect themselves from price volatility.
Jewellers pay a lumpsum amount as advance tax on presumption of sales during the January-March quarter and compensatory tax, if any, from the previous three quarters of the current fiscal year. This year, the tax component is expected to rise significantly due to a sharp spike in gold prices.
The income tax department has started asking jewellers to pay advance tax on increased value of stock due to a surge in gold prices.
“It is a double whammy for jewellers as sales have come to standstill due to fear of coronavirus and high volatility in gold prices. The decline in sales has created a liquidity problem for jewellers. At the same time, they will have to pay advance tax on increased value of stocks. So, it’s a double blow for us,” said Anantha Padmanabhan, managing director, NIC Jewellers, a Chennai-based jewellery retailer and chairman of Gems and Jewellery Domestic Council (GJC).
Gold prices have risen by a significant 25 per cent since September to trade currently at Rs 41,000 per 10 g (Saturday). Standard gold in Mumbai’s Zaveri Bazaar corrected after hitting a record high of around Rs 44,000 per 10 g on Saturday. Similarly, silver also fell by Rs 1,500 to trade at Rs 42,600 per kg.