Jewellery stocks down on falling bullion prices

The share price of jewellery manufacturers and retailers declined up to 6% on Monday amid concerns of drastic erosion in the value of inventory due to falling bullion prices in the last few days.

Goldiam International’s share ended on Monday with a decline of 5.71% at Rs 19.80.

The Industry leaders including Shree Ganesh Jewellery, C Mahendra Exports, Shrenuj & Co, Gitanjali Gems and Tribhovandas Bhimji Zaveri also witnessed a drastic decline in their respective share prices following falling gold and silver prices in global as well as domestic markets.

Gold price plunged 4.77% on Monday in Mumbai’s benchmark Zaveri Bazaar as stockists and retail buyers remained sideways from fresh purchase.

Standard gold closed, therefore, with a decline of Rs 1,330 at Rs 26,550 per 10 grams on Monday as against Rs 27,880 per 10 grams on Saturday. Similarly, silver fell by 7.14% or Rs 3,615 to close on Monday at Rs 46,990 a kg as against Rs 50,604 a kg on Saturday.

Stabilising rupee movement against the greenback helped gold’s repeat of global trend in India.

“While hedgers would not be impacted, small traders with unhedged quantity of gold and silver will be immensely hit with a drastic erosion in their inventory value,” said Ketan Shroff, Director of Penta Gold, a Mumbai-based bullion dealer.

Jewellers hold stocks equivalent to three months of their sales for selling through various points of sales (POS) running thereby their value in hundreds of crores. But, falling prices of gold and silver have raised fears of proportionate erosion in the value of their inventory.

Gold and silver prices declined around 6% and 9% respectively on Monday. In the last three days, however, the bullion prices fell a drastic 16% resulting into similar impact on the value of stocks jewellers hold. The trend may support diamond jewellery sales, though.

The panic selling continued in futures market as well with the near month contract on the Multi Commodity Exchange was traded with over 5% decline at Rs 26,601 per 10 grams following the similar trend in London where the yellow metal hit the near month support level of $1,385 an oz before recovering a bit to $1,407 in early afternoon trade. Near month silver contract also followed suit and fell over 8% to Rs 45,561 a kg on the MCX.

The fall in the bullion price, however, encouraged a handful of larges stockists to place fresh orders. But, unfortunately, banks and nominated agencies went out of bullion holding. According to Shroff, banks have placed new orders to suppliers with the new quantity is set to hit Indian markets in two-three days.

With the new class of buyers may be interested in entering into the market, the bullion price would normalize in India. The fall is good for a resurgence in demand ahead of Akshaya Tritiya, this year falling on May 13.

According to Gnanasekar Thiagarajan, Director, Commtrendz Research, gold broke the medium term target of $1385 on Monday setting the next support level at $1,300 an oz which is possible very soon. The sentiment has changed completely from bullish to bearish within no time. After 12 continuous year of upsurge, weakness of a year or two was imminent. The market continues to remain in panic selling mode as traders exited together on hearsay.

The confidence in gold has been severely dented given the magnitude and the forcefulness of the recent fall. Fears of a Cyprus’ 14 tonnes of gold sale and other debt ridden euro zone nations to follow the similar trend, long liquidations in ETF’s and unwinding of long positions by institutions in the international markets have contributed to the downfall, said Kishore Narne, Head of Commodities, Motilal Oswal Securities.