Gold and diamond jewellery lose sheen over rising prices; global downturn hits exports

Gold and diamond jewellery lose sheen over rising prices; global downturn hits exports

It’s a double whammy for the gold and diamond jewellery sector in the country this year with domestic sales grappling with a steep increase in gold price and exports facing severe headwinds from the economic downturn in several countries.

Prices of the yellow metal have risen around 20 percent since the beginning of the year and scaled a new peak in May when they touched around Rs 63,000 per 10 gm. Though it has slid from the highest level, the rate continues to hover around Rs 60,000 per 10 gm.

``Jewellery sales have fallen by 5 percent in May and June. Gold prices are stable now and we expect the sales to pick up after August when the festival season begins,’’ says Saiyam Mehra, Chairman, All India Gem and Jewellery Domestic Council.

According to him, gold prices may reach around Rs 63,000 per 10 gm during the festival season but will not affect sales as consumers will be prepared to buy despite the price. He expects the overall sales to be the same as last year. ``There are two kinds of consumers. One that prefers light jewellery in the range of Rs 2 lakh - 3 lakh and those who go for purchases of over Rs 10 lakh. The addition of Rs 1 lakh -2 lakh in the price won’t make a difference to the second category,’’ he says.

As per the report of the World Gold Council (WGC), the demand for gold jewellery in the first quarter of 2023 (January-March) was at 78 tonnes, the weakest in India since 2020 with a 17 per cent drop year-on-year. The decline has been attributed to high prices. The Q4 of 2022 (October-December)also saw a similar decline as the gold prices started moving up from last November. The slowdown has continued in the first quarter of 2023 as well.

WGC forecasts the demand to remain muted in the second quarter as rural demand continues to be fragile and persistent inflation is likely to impact consumer demand. It sees healthy monsoon rainfall as a saving grace.

The sales in the second quarter have been badly hit by the sharp rise in the price of the yellow metal since April. The south-west monsoon so far has been inconsistent as well. Sale of gold jewellery on Akshaya Tritiya (considered to be the auspicious day to buy gold) in April, remained flat in terms of volumes vis-à-vis last year. But the earnings of the retailers saw a 15-20 percent jump because of soaring prices. The 24-carat gold prices in the country crossed the Rs 60,000 per 10 gm level in April and has continued to stay around that level since.

``The consumers are more aware of price trends these days and when the rates go down, they book purchases for a later date. Demand will see a positive trend from August,’’ says B Govindan, Chairman of Bhima Jewellers. However, smaller jewellers have to contend with lower volume purchases with prices shooting up.

The chances of gold prices going up are high in the coming months. Prathamesh Mallya, Deputy Vice President, Research, Commodity and Currencies at Angel One, says that if the dollar index goes down to 95 from the current around level of 101, then the global gold prices could reach $2100 per ounce. In India this will translate to an increase of around Rs 3,000 per 10 gm from the current levels.

``In the US the inflation seems to be under control and if the Federal Reserve decides to delay a rate hike in the next meeting, then it could also spur the gold prices,’’ he adds. International gold prices have slid to $ 1960 now, after touching a high of $2049 per ounce in May.

Gem and jewellery exports are facing rough weather in FY23. For the first quarter ended June 30, 2023, exports have plummeted 28 percent to $7.22 billion compared to the same period a year before. Diamonds, which account for the major share in jewellery export, have been hit the most. They have plunged by 29 percent to $4.43 billion. Gold jewellery exports fell by 15 percent to $1.88 billion. In 2022-23, the gem and jewellery export at $38.08 billion was about 3 percent lower than the previous year.

``The situation in the US and European markets has been bad for all exports in general. High inflation and interest rates have affected diamond exports. But we expect it to pick up in the second half of the year,’’ said Smit Patel, Partner at Greenlab Diamonds. The US is a big market for diamonds, especially the lab grown ones, which are cheaper than the natural varieties with the same qualities.

Recently, Prime Minister Narendra Modi had presented a 7.5 carat lab grown diamond (LGD), made by Greenlab to the US First Lady during his visit there. This year LGD exports too have declined in the first quarter.