India, the second-largest consumer of gold jewellery worldwide, has witnessed significant enthusiasm among buyers despite high prices. However, the sustained rally in gold prices has gradually dampened the demand, impacting the volume growth of organised gold jewellery retailers.

While gold prices have experienced a correction from their recent highs, they continue to trade at elevated levels. Although these inflated prices can positively impact the revenue of organised gold jewellery retailers, the growth in volume may start to moderate.

A study conducted by CRISIL Ratings, analyzing 46 gold jewellery retailers that represent nearly 25 percent of the organised jewellery sector's revenue, supports this observation. According to the study, organised gold jewellers are expected to witness a revenue increase of 16-18 percent in FY24, while the volume growth could be minimal, reaching up to 5 percent. The organised sector constitutes approximately one-third of the industry, with the remaining share held by the highly fragmented unorganised sector.

The increased penetration of goods and services tax (GST), mandatory hallmarking, rising disposable income, and evolving consumer preferences towards jewellery designs are gradually shifting market share towards organised players. However, the expansion of stores in the current fiscal year may result in higher inventory requirements and increased working capital debt for these retailers.

The Reserve Bank of India (RBI) reports that gross bank credit to the sector has declined by 3 percent over the 12 months ending in March 2023 as players rationalized inventory across stores and generated healthy cash flow.

The volatility of gold prices can be attributed to its finite nature as a commodity. Limited mining quantities coupled with increased demand drive its prices. In the last fiscal year, the domestic price of gold increased by nearly 10 percent, averaging Rs 52,700 per 10 grams (24-carat), and reaching Rs 60,000 per 10 grams by the end of March 2023. The price further rose to an all-time high of Rs 61,500 per 10 grams in May 2023, as gold retained its allure as a safer investment option amidst an uncertain global economic outlook.

Apart from high demand, the actions of the US Federal Reserve, which considers inflation, also contribute to the rise in international gold prices. In its recent meeting on June 14th, the US Federal Reserve kept interest rates unchanged but signaled two rate hikes this year. Consequently, international gold prices hit a near three-month low on June 15th, falling to $1,945 per ounce and affecting prices in India as well. The Fed's economic projections indicated a likelihood of borrowing costs rising by another half percentage point by the end of the year, driven by a stronger-than-expected economy and a slower decline in inflation.

However, sharp volatility in gold prices, changes in government regulations and import duties, as well as consumer sentiment, are factors that need to be closely monitored by industry players.