To mitigate inventory risks associated with gold price fluctuations, jewellers like Titan typically lease gold from bullion banks that import the precious metal. However, recent reports suggest that bullion banks have been diverting gold to the U.S., where gold futures are trading at a substantial premium compared to spot prices.

The shift has been partly driven by concerns over potential U.S. import tariffs, prompting an increase in gold deliveries to Comex-approved warehouses — the highest since July 2022. Ajoy Chawla, CEO of Titan's Jewellery Division, noted the sudden shortage of gold and rising metal loan interest rates during an investor call.

"Gold has moved from the London market to Comex due to anticipated tariffs. Over the past week, we've seen a sudden shortage, and loan interest rates for gold are now highly fluid," Chawla said.

Titan indicated that gold leasing rates, currently between 1.5% and 2%, could rise but did not specify by how much. Vijay Govindarajan, Associate Vice President of Finance, stated that it might take a month or two to assess how supply dynamics and pricing evolve.

The company also expressed uncertainty about fourth-quarter growth due to record-high gold prices fueled by fears of a renewed U.S.-China trade war. However, it did not clarify which specific growth metric it was referring to.

Despite these challenges, Titan reported better-than-expected third-quarter profits. Nevertheless, the company faced second-quarter setbacks due to inventory losses after the Indian government reduced gold import taxes in July 2024. Titan had to sell older inventory at lower prices, negatively impacting its profits.

Looking ahead, Chawla remained cautiously optimistic, expressing hope for sustained growth if gold prices stabilize. "We hope to maintain the growth rates seen over recent quarters or at least match the second and third quarters' performance," he said.

Source: reuters