Gold prices, which have been steadily moving north over the last few years, went into their sharpest, steepest climb ever, in recent months, particularly in August this year. Over the last couple of years or so, the markets had watched in amazement as gold price conquered first one mark and then another and another; as it went from Rs. 10,000, to Rs. 15,000 to Rs. 20,000 per 10 gm, and were left stupefied when it hit the Rs. 28,000 per 10 gm mark in August 2011.%% There is now serious concern amongst jewellers. Earlier, the jewellery market had been taking the price rises in its stride. After all, the investment sentiment in a gold purchase has always been strong and if the value of your investment was on the upswing no one was complaining. However, one cannot forget that gold jewellery is almost a necessity in this country – no wedding is complete without it. Vast numbers of masses at different levels of purchasing power make up the market. At some point, resistance was bound to set in. If not in terms of numbers of people in the market, certainly in terms of volume of jewellery bought. While there have been dips in gold jewellery sales previously, in the long term, the growth trend prevailed. Will consumers also adjust to these new price levels? Will the demand continue to grow, or level out or in fact start retracting in the long term? Or will the prices crash? These are some of the questions that are coming up. What is more, fluctuations in prices which have for some time been a bane, have today definitely become a pain. Nilan Singh and Stephen Rego try to understand what recent gold price trends have meant to the market, and what entrepreneurs in the business are doing to cope with the situation.

There was a time when market savants would sit and debate over whether the gold price would reach the Rs.10,000 per 10 gm mark. In the gold jewellery market, it was the equivalent of the British penchant for discussing the weather. “What do you think, will gold hit 10,000?” Will it, won’t it, went the chant…and it did. As it steadily reached the Rs. 15,000 per 10 gm point, the guessing games stopped. Yes, it definitely will rise and keep rising. That was conclusion the collective wisdom of the market settled upon. But when gold prices crossed the Rs. 20,000 mark some months ago, the rapid rise which followed caused some ripples in the market. Arguably, the last six months have seen the steepest, sharpest climb of the gold price, certainly in a long time, maybe ever. (Graph A) %% {{New Peaks in Gold Prices}}%% Gold prices took off on a roller coaster ride during August 2011, starting the month with prices in the range of Rs 23,000, followed by a sharp escalation in the second and third weeks to touch the hitherto unheard of almost Rs 29,000 level, before declining to little below the Rs 27,000 mark as the month drew to a close. A number of analysts also pointed out that in the current rally, gold price exceeded the price of platinum, usually considered the costliest metal, on August 10. %% Ironically, the month end rates were already being viewed by a section of the market as a decline from the mid-month peak, rather than a sharp rise from where it began; reflecting the psychology of a community of gold investors and purchasers who are now fully accustomed to a cycle of ever escalating prices, that reach new peaks and then ‘stabilise’ at levels much above where they started from. %% It is fairly clear that the sudden spurt in August was driven by the financial uncertainty sparked off with the downgrading of the US credit rating from AAA to AA+ and fears of similar downgrades in major Eurozone economies, leading retail and institutional investors to the safe haven of gold. However, an added factor leading to increase in investment demand in the last couple of years has also been governments or central banks buying gold. A World Gold Council report notes that “During Q2 2011, central banks from emerging markets continued to add to their gold reserves, led by Mexico” and “collective central bank net purchases in 2011 have already surpassed the total of 2010”. Elsewhere it draws attention to the increase in gold holdings of the Bank for International Settlements (BIS), stating that “The BIS holdings of gold, as of March 2011, have increased by 63 tonnes from 2010, as a result of continuing gold swap operations…… under which the Bank exchanges currencies for physical gold.” %% The GFMS Gold Survey 2011 notes that in 2010 there was “a dramatic swing to net official sector purchases of some 73 tonnes”. It adds, “To put this into a longer term perspective, central banks as a whole were a consistent net seller from 1989 to 2009.” %% Over the last decade therefore, there has been a significant increase in gold investment demand and a complementary decrease in fabrication demand, and today jewellery accounts for just over 50 per cent of global gold demand. (Graph 1)

The dynamics in India, where gold jewellery was always viewed as an investment, have been slightly different, though the country has not remained immune to this trend. Investment demand which was under 10 per cent in the 1992 and rose to nearly 15 per cent about a decade ago, now constitutes almost 20 per cent of total demand. (Graph 2) Despite this, jewellery demand has continued to be strong, driven both by the large rural market, the rise in numbers and growing affluence of the middle class, and the ‘cash-purchase’ segment of the urban economy. (Graph 3) %% {{Impact on Demand}}%% However, if the current prices hold, what impact it will have remains to be seen. “From about Rs. 18,000, earlier, the gold price went to about Rs. 25,000 in mid-July,” says Konal Doshi of Modern Impex, manufacturer-exporter and wholesaler in the domestic market. “Earlier the demand held on the anticipation that prices would rise. But after it touched the Rs. 28,000 mark, there has been somewhat of a lull.” %% This was quite evident during the IIJS, as the final assault on the peak took place during the show. Several exhibitors confirmed that the high price had cast a cloud of apprehension over the show. Shailesh Sangani of Priority Jewels speaking to us at the show summed up the situation saying, “It’s not that buyers are not buying, but there is a general hesitancy and caution when placing orders.” %% Confirming Sangani’s view of the mood at the IIJS, Ariez Tata of Nascent Jewellery Pvt Ltd, owner of the Viola brand says, “IIJS is a time when the big buyers write their business for the year. This time the rising prices two weeks prior to the show, which reached their peak during the show, made them hesitant. They were mentally prepared to order, but held back especially due to the volatility.” However, he notes, “It’s not as if the rise was not expected. Jewellers were all anticipating the price rise, but at the new level, the challenge is to keep the sales up.” He does point out that the increase in gold prices is nowhere near being proportionate to the growth in the consumer’s spending power. This sentiment is also echoed by Prithviraj Kothari, president of the Bombay Bullion Association, who is reported to have said in an interview on the eve of the Indian season kicking off: “If prices stay at current levels, demand will be lower during the festival season. But if prices fall to 25,000 rupees (per 10 gms), then it will rise.” %% However, not everyone believes that demand has been impacted greatly, or across the entire market. Rajendra Zaveri of RBZ Jewellers of Ahmedabad feels that the high end of the segment which he caters to is not affected by the high gold prices; the mid-segment which he says comprises mainly of those buying wedding jewellery do feel the pinch; and it is most severely felt by those at the lower end of the segment who are extremely price sensitive, but they do not cater to that section. %% Avinash Pahuja of Raia Jewels, the owner of the Oro brand of jewellery, says that he has not experienced a drop in sales. “Every time prices go up, people tend to buy more jewellery,” he opines. “Traditionally, gold has been seen as the best investment and gold wearing not only considered auspicious, it is also a must for weddings.” %% {{Volatility Confounds the Market}}%% Though prices seem to be hovering around the Rs 27,000 mark – just below on Aug 31st and just above in the first few days of September – a factor which has further confounded the market is the high degree of volatility in gold price, not just on a weekly or daily basis but even in a single day. Manufacturers, especially medium and small businesses, seem to be in a cleft stick either which way.

Recent reports suggest that bullion dealers, afraid of payment defaults by their buyers have tightened up dealings in various ways. For one, they demand payment upfront and in cash. Also, the margin deposits have also been increased. Economic Times reported that Riddi-Siddhi Bullion (RSBL) a major dealer raised the margin deposit from Rs. 50,000 to Rs 1.5 lakh. “An increase in the margin deposit was necessitated the way prices have been moving recently,” Prithviraj Kothari, MD, RSBL, is reported to have commented. “The margin can be brought down if prices stabilise.” %% On the other side, as Mansukh Kothari of Vasupati Jewellers explains, “Price volatility is affecting the B2B trade to quite a great extent. Not only is there a weekly and daily fluctuation, even within a single day there will be one price in the morning and another in the evening. This is holding up deals as well as restricting the flow of payments from our customers.” %% Doshi notes that the volatility could be as much as 5 per cent to 6 per cent on a daily basis. “This makes it very difficult for a manufacturer to know at what price he can commit himself,” he says. “Even if he buys gold on an unfixed basis from a bank or hedges it on a commodity exchange, one is not sure at what price it will be sold.” He points out that there is however, a large segment in the market who feel that as gold is continuously going up, they need not worry about the immediate effects, as they will continue to benefit from this rise. “This is a very speculative way of doing business,” he notes. “One can get very badly hurt.” %% Zaveri agrees that more than the price, it is volatility which has a greater overall impact on the market. “Customers are just beginning to adapt to it, though they have not yet fully done so,” he says. He believes that the current trends are only going to be further emphasised in the immediate future. “Retailers are stocking, but they are very choosy about the jewellery they buy,” Zaveri adds. %%

{{|*Earlier, the demand held on the anticipation that prices would rise. But after it touched the Rs. 28,000 mark, there has been somewhat of a lull.*| -Konal Doshi}}

{{The Shift to Bullion}}%% The Indian gold market has always been investment oriented. Earlier, even when they were buying jewellery, one eye of the consumer was on the investment value of the purchase. At the time, other options were limited and hence buying gold in the form of jewellery was common for those whose main aim was investment. However, today, a variety of gold products from bullion – in the form of bars and coins – to paper, are all freely available in the modern gold marketplace. As noted earlier, there has been a strong growth in bullion sales. “There has been a huge surge in “non-labour” gold,” says Tata, commenting on the offtake of bullion and other direct forms of investment. %% Apart from pure investors, or those who are “playing” the market, there is also a segment of jewellery consumers who are turning to bullion. Kothari points out that unlike earlier times when even those who did not have a marriage immediately in the family would still purchase jewellery and build up the trousseau over the years, today prefer to buy bullion which can be converted to jewellery at a later date. %% Doshi sums it up saying: “While there is overall growth of the gold market, the jewellery business has been affected while the increase has gone into investment of raw gold.” %% {{Meeting the Challenges}}%% How then are jewellers coping with the various challenges thrown up by the current situation? What are the ways and means they adapt to overcome these? Kothari voices the most widespread reaction when he says, “One way of countering the price hikes is to make more lightweight jewellery with a heavier look, with good designs and a good finish.” %% Despite his assertion that his company has not experienced any retraction in sales as a result of the price rise, Pahuja has recently launched 18k gold bangles in the market - which is a first, in the traditionally 22k market - in order to make them more widely accessible. “Bangles are very popular with the Indian consumer,” Pahuja explains. “And as 18k gold is stronger, we are able to offer a larger look in lighter weight. The new line is 20 per cent lighter, and 40 per cent cheaper.” He expects the product to do well in the cities and says that it is already accounting for 10 per cent of sales and that by the end of the year is expected to attain a 20 per cent share. %% Zaveri says that his company is concentrating on manufacturing unique products. He feels that for the high-end consumer, theme-based jewellery and a stylish, unique product is like a magnet. Their most recent innovation is a collection based on the Mesopotamian Civilisation, widely regarded as one of the oldest civilisations in the world. “We did a lot of research into the jewellery of that period, to not only come up with the designs but also studied the methods of producing it and reproduced the effects,” says Zaveri. %%

Apart from this, Zaveri also points out that paying attention to technical aspects, usage of machinery and a greater use of stones for example, could make a difference to overall price and thereby counter the effects of gold prices to some extent. %% “Our specialty is in fact our lightweight product,” states Tata defining Nascent Jewellery’s USP. “We use the electroforming method which is very popular in Europe.” The company which was mainly into exports, decided to enter the Indian market as it had a specialised product. “There is such a scramble for space amongst brands,” explains Tata. “But if you have a unique product, it helps open doors.” That is just what the new entrant Viola has achieved. In the course of one year it has reached about 50 outlets. “We are investing more and more into technology,” explains Tata. The company which is also a major supplier of micro-light chains and which recently bought the Nirvana brand, is now poised to launch new initiatives. %% Arshia Jewels has introduced an innovation of a different kind – kundan-meena jewellery that is contemporary in design and uses tanzanite instead of the traditionally used, more expensive emeralds and rubies. “If a product is good, and quality is assured, then it will always find ready buyers,” says Rupesh Tambi of Arshia. The company has also launched a 14k jewellery line to complement the 18k range that it offers. “The concepts in the two lines are not very different, but the lower gold content makes the 14k jewellery an attractive choice for younger, modern women across the top 20 cities of the country,” explains Tambi.

Doshi offers quite a different approach altogether. “If prices are going up, one approach that jewellers could take is to cater more to investment demand by producing very low value addition jewellery,” he suggests. “You could produce a product for which no design, no craftsmanship is required. For example, jewellery made by the stamping method. Or take the case of chains – you can have a one per cent value addition or a 30 per cent value addition. So if people want to invest in gold, they don’t have to buy bullion. Without spending too much extra on labour costs they can have gold which is also wearable and usable and not only stored away in lockers.” %% {{Plans to Assist the Consumer}}%% On the other hand, several retailers are also devising schemes to help consumers counter the impact of price rises and volatility which are widely seen to be depressing the market. One of the most common is a savings plan under which consumers deposit small amounts in installments to the jeweller over a period of time and then purchase jewellery of their choice at the end of the period. Particularities of the scheme may vary. Some even claim to offer protection against volatility. %% Reliance Jewels plans to introduce its plan in October this year under which consumers can invest with them upto a year and then buy gold at the rate prevailing on the date of maturity. Alternatively, a consumer can also choose to purchase small amounts of gold everyday for a year and then get jewellery equivalent to the grammage accumulated over the period at maturity. Thus freeing his/her purchase from the impact of gold price fluctuations. %% Tanishq launched its Swarnanidhi plan, based on gold g r a m m a g e accumulation, in June this year, across half its 130 outlets nationwide, and plans to extend it to its other stores by September. This is a twoyear scheme, under which consumers can invest a minimum of Rs 1,000, or multiples thereof, once a month. Upon each payment, gold grammage at the prevailing rate is credited to the customer’s account and upon maturity the consumer can buy jewellery of the equivalent amount of the total grammage accumulated. %% Bangalore-based C Krishniah Chetty and Sons, recently announced a scheme for buying/ saving for gold, silver and diamond jewellery. “The C. Krishniah Chetty and Sons’ Gold Standard 1869 Rate Protection Plan is symbolic of our commitment to our customers,” said Vinod Hayagriv, Managing Director, C. Krishniah Chetty and Sons. “It is a unique Rate Protection Plan best suited for salaried and business people alike.” He emphasises that their monthly savings scheme is different from others on two counts: Instead of the usual 12- 18 months duration, CKC’s plan runs for 60 months; it also enables consumers to shift from planned rate to prevailing rate in case the latter is lower on the scheme’s maturity. %% A World Gold Council study finds that these schemes are widely prevalent all over the country. According to reports Ajay Mitra, Managing Director (India, Middle East), World Gold Council, said that as many as 75 per cent of the total jewellers in Surat are offering such schemes, while in Ahmedabad, the number is slightly less at 64 per cent. He added that that in cities like Chennai, Madurai and Nagpur almost all the jewellers offered such schemes; in Bangalore, 94 per cent jewellers offered saving schemes, while in Mumbai 77 per cent jewellers practiced this method. %%

The widespread nature of these schemes itself is telling. There can be no doubt that the rising price of gold has created a strain on the consumer. While her budget cannot go up to the same extent, she is forced to trade down in terms of karatage or volume or both to accommodate her purchases in her budget. There is a section of opinion which states: “Gold is a rare and precious commodity – it’s price can only go up.” On the other hand many analysts feel that the present bull run has to end at some point, and even those who foresee a dip. Whatever the case, jewellers will have to exercise every ingenuity on two counts – to manage their businesses and to ensure that consumers keep returning to the jewellery counters. A Herculean task, but not an impossible one.

{{|*It’s not as if the rise was not expected. Jewellers were all anticipating the price rise, but at the new level, the challenge is to keep the sales up.*| -Ariez Tata}}

{{|*Theme-based jewellery; and a stylish, unique product is like a magnet for the high-end consumer*| - Rajendra Zaveri}}

{{|*Our new line of 18k bangles is 20 per cent lighter and 40 per cent cheaper.*| -Avinash Pahuja}}%% {{|*Price volatility is affecting the B2B trade to quite a great extent. It is holding up deals as well as restricting the flow of payments from our customers.*| -Mansukh Kothari}}

Gold prices, which have been steadily moving north over the last few years, went into their sharpest, steepest climb ever, in recent months, particularly in August this year. Over the last couple of years or so, the markets had watched in amazement as gold price conquered first one mark and then another and another; as it went from Rs. 10,000, to Rs. 15,000 to Rs. 20,000 per 10 gm, and were left stupefied when it hit the Rs. 28,000 per 10 gm mark in August 2011.%% There is now serious concern amongst jewellers. Earlier, the jewellery market had been taking the price rises in its stride. After all, the investment sentiment in a gold purchase has always been strong and if the value of your investment was on the upswing no one was complaining. However, one cannot forget that gold jewellery is almost a necessity in this country – no wedding is complete without it. Vast numbers of masses at different levels of purchasing power make up the market. At some point, resistance was bound to set in. If not in terms of numbers of people in the market, certainly in terms of volume of jewellery bought. While there have been dips in gold jewellery sales previously, in the long term, the growth trend prevailed. Will consumers also adjust to these new price levels? Will the demand continue to grow, or level out or in fact start retracting in the long term? Or will the prices crash? These are some of the questions that are coming up. What is more, fluctuations in prices which have for some time been a bane, have today definitely become a pain. Nilan Singh and Stephen Rego try to understand what recent gold price trends have meant to the market, and what entrepreneurs in the business are doing to cope with the situation.

There was a time when market savants would sit and debate over whether the gold price would reach the Rs.10,000 per 10 gm mark. In the gold jewellery market, it was the equivalent of the British penchant for discussing the weather. “What do you think, will gold hit 10,000?” Will it, won’t it, went the chant…and it did. As it steadily reached the Rs. 15,000 per 10 gm point, the guessing games stopped. Yes, it definitely will rise and keep rising. That was conclusion the collective wisdom of the market settled upon. But when gold prices crossed the Rs. 20,000 mark some months ago, the rapid rise which followed caused some ripples in the market. Arguably, the last six months have seen the steepest, sharpest climb of the gold price, certainly in a long time, maybe ever. (Graph A) %% {{New Peaks in Gold Prices}}%% Gold prices took off on a roller coaster ride during August 2011, starting the month with prices in the range of Rs 23,000, followed by a sharp escalation in the second and third weeks to touch the hitherto unheard of almost Rs 29,000 level, before declining to little below the Rs 27,000 mark as the month drew to a close. A number of analysts also pointed out that in the current rally, gold price exceeded the price of platinum, usually considered the costliest metal, on August 10. %% Ironically, the month end rates were already being viewed by a section of the market as a decline from the mid-month peak, rather than a sharp rise from where it began; reflecting the psychology of a community of gold investors and purchasers who are now fully accustomed to a cycle of ever escalating prices, that reach new peaks and then ‘stabilise’ at levels much above where they started from. %% It is fairly clear that the sudden spurt in August was driven by the financial uncertainty sparked off with the downgrading of the US credit rating from AAA to AA+ and fears of similar downgrades in major Eurozone economies, leading retail and institutional investors to the safe haven of gold. However, an added factor leading to increase in investment demand in the last couple of years has also been governments or central banks buying gold. A World Gold Council report notes that “During Q2 2011, central banks from emerging markets continued to add to their gold reserves, led by Mexico” and “collective central bank net purchases in 2011 have already surpassed the total of 2010”. Elsewhere it draws attention to the increase in gold holdings of the Bank for International Settlements (BIS), stating that “The BIS holdings of gold, as of March 2011, have increased by 63 tonnes from 2010, as a result of continuing gold swap operations…… under which the Bank exchanges currencies for physical gold.” %% The GFMS Gold Survey 2011 notes that in 2010 there was “a dramatic swing to net official sector purchases of some 73 tonnes”. It adds, “To put this into a longer term perspective, central banks as a whole were a consistent net seller from 1989 to 2009.” %% Over the last decade therefore, there has been a significant increase in gold investment demand and a complementary decrease in fabrication demand, and today jewellery accounts for just over 50 per cent of global gold demand. (Graph 1)

The dynamics in India, where gold jewellery was always viewed as an investment, have been slightly different, though the country has not remained immune to this trend. Investment demand which was under 10 per cent in the 1992 and rose to nearly 15 per cent about a decade ago, now constitutes almost 20 per cent of total demand. (Graph 2) Despite this, jewellery demand has continued to be strong, driven both by the large rural market, the rise in numbers and growing affluence of the middle class, and the ‘cash-purchase’ segment of the urban economy. (Graph 3) %% {{Impact on Demand}}%% However, if the current prices hold, what impact it will have remains to be seen. “From about Rs. 18,000, earlier, the gold price went to about Rs. 25,000 in mid-July,” says Konal Doshi of Modern Impex, manufacturer-exporter and wholesaler in the domestic market. “Earlier the demand held on the anticipation that prices would rise. But after it touched the Rs. 28,000 mark, there has been somewhat of a lull.” %% This was quite evident during the IIJS, as the final assault on the peak took place during the show. Several exhibitors confirmed that the high price had cast a cloud of apprehension over the show. Shailesh Sangani of Priority Jewels speaking to us at the show summed up the situation saying, “It’s not that buyers are not buying, but there is a general hesitancy and caution when placing orders.” %% Confirming Sangani’s view of the mood at the IIJS, Ariez Tata of Nascent Jewellery Pvt Ltd, owner of the Viola brand says, “IIJS is a time when the big buyers write their business for the year. This time the rising prices two weeks prior to the show, which reached their peak during the show, made them hesitant. They were mentally prepared to order, but held back especially due to the volatility.” However, he notes, “It’s not as if the rise was not expected. Jewellers were all anticipating the price rise, but at the new level, the challenge is to keep the sales up.” He does point out that the increase in gold prices is nowhere near being proportionate to the growth in the consumer’s spending power. This sentiment is also echoed by Prithviraj Kothari, president of the Bombay Bullion Association, who is reported to have said in an interview on the eve of the Indian season kicking off: “If prices stay at current levels, demand will be lower during the festival season. But if prices fall to 25,000 rupees (per 10 gms), then it will rise.” %% However, not everyone believes that demand has been impacted greatly, or across the entire market. Rajendra Zaveri of RBZ Jewellers of Ahmedabad feels that the high end of the segment which he caters to is not affected by the high gold prices; the mid-segment which he says comprises mainly of those buying wedding jewellery do feel the pinch; and it is most severely felt by those at the lower end of the segment who are extremely price sensitive, but they do not cater to that section. %% Avinash Pahuja of Raia Jewels, the owner of the Oro brand of jewellery, says that he has not experienced a drop in sales. “Every time prices go up, people tend to buy more jewellery,” he opines. “Traditionally, gold has been seen as the best investment and gold wearing not only considered auspicious, it is also a must for weddings.” %% {{Volatility Confounds the Market}}%% Though prices seem to be hovering around the Rs 27,000 mark – just below on Aug 31st and just above in the first few days of September – a factor which has further confounded the market is the high degree of volatility in gold price, not just on a weekly or daily basis but even in a single day. Manufacturers, especially medium and small businesses, seem to be in a cleft stick either which way.

Recent reports suggest that bullion dealers, afraid of payment defaults by their buyers have tightened up dealings in various ways. For one, they demand payment upfront and in cash. Also, the margin deposits have also been increased. Economic Times reported that Riddi-Siddhi Bullion (RSBL) a major dealer raised the margin deposit from Rs. 50,000 to Rs 1.5 lakh. “An increase in the margin deposit was necessitated the way prices have been moving recently,” Prithviraj Kothari, MD, RSBL, is reported to have commented. “The margin can be brought down if prices stabilise.” %% On the other side, as Mansukh Kothari of Vasupati Jewellers explains, “Price volatility is affecting the B2B trade to quite a great extent. Not only is there a weekly and daily fluctuation, even within a single day there will be one price in the morning and another in the evening. This is holding up deals as well as restricting the flow of payments from our customers.” %% Doshi notes that the volatility could be as much as 5 per cent to 6 per cent on a daily basis. “This makes it very difficult for a manufacturer to know at what price he can commit himself,” he says. “Even if he buys gold on an unfixed basis from a bank or hedges it on a commodity exchange, one is not sure at what price it will be sold.” He points out that there is however, a large segment in the market who feel that as gold is continuously going up, they need not worry about the immediate effects, as they will continue to benefit from this rise. “This is a very speculative way of doing business,” he notes. “One can get very badly hurt.” %% Zaveri agrees that more than the price, it is volatility which has a greater overall impact on the market. “Customers are just beginning to adapt to it, though they have not yet fully done so,” he says. He believes that the current trends are only going to be further emphasised in the immediate future. “Retailers are stocking, but they are very choosy about the jewellery they buy,” Zaveri adds. %%

{{|*Earlier, the demand held on the anticipation that prices would rise. But after it touched the Rs. 28,000 mark, there has been somewhat of a lull.*| -Konal Doshi}}

{{The Shift to Bullion}}%% The Indian gold market has always been investment oriented. Earlier, even when they were buying jewellery, one eye of the consumer was on the investment value of the purchase. At the time, other options were limited and hence buying gold in the form of jewellery was common for those whose main aim was investment. However, today, a variety of gold products from bullion – in the form of bars and coins – to paper, are all freely available in the modern gold marketplace. As noted earlier, there has been a strong growth in bullion sales. “There has been a huge surge in “non-labour” gold,” says Tata, commenting on the offtake of bullion and other direct forms of investment. %% Apart from pure investors, or those who are “playing” the market, there is also a segment of jewellery consumers who are turning to bullion. Kothari points out that unlike earlier times when even those who did not have a marriage immediately in the family would still purchase jewellery and build up the trousseau over the years, today prefer to buy bullion which can be converted to jewellery at a later date. %% Doshi sums it up saying: “While there is overall growth of the gold market, the jewellery business has been affected while the increase has gone into investment of raw gold.” %% {{Meeting the Challenges}}%% How then are jewellers coping with the various challenges thrown up by the current situation? What are the ways and means they adapt to overcome these? Kothari voices the most widespread reaction when he says, “One way of countering the price hikes is to make more lightweight jewellery with a heavier look, with good designs and a good finish.” %% Despite his assertion that his company has not experienced any retraction in sales as a result of the price rise, Pahuja has recently launched 18k gold bangles in the market - which is a first, in the traditionally 22k market - in order to make them more widely accessible. “Bangles are very popular with the Indian consumer,” Pahuja explains. “And as 18k gold is stronger, we are able to offer a larger look in lighter weight. The new line is 20 per cent lighter, and 40 per cent cheaper.” He expects the product to do well in the cities and says that it is already accounting for 10 per cent of sales and that by the end of the year is expected to attain a 20 per cent share. %% Zaveri says that his company is concentrating on manufacturing unique products. He feels that for the high-end consumer, theme-based jewellery and a stylish, unique product is like a magnet. Their most recent innovation is a collection based on the Mesopotamian Civilisation, widely regarded as one of the oldest civilisations in the world. “We did a lot of research into the jewellery of that period, to not only come up with the designs but also studied the methods of producing it and reproduced the effects,” says Zaveri. %%

Apart from this, Zaveri also points out that paying attention to technical aspects, usage of machinery and a greater use of stones for example, could make a difference to overall price and thereby counter the effects of gold prices to some extent. %% “Our specialty is in fact our lightweight product,” states Tata defining Nascent Jewellery’s USP. “We use the electroforming method which is very popular in Europe.” The company which was mainly into exports, decided to enter the Indian market as it had a specialised product. “There is such a scramble for space amongst brands,” explains Tata. “But if you have a unique product, it helps open doors.” That is just what the new entrant Viola has achieved. In the course of one year it has reached about 50 outlets. “We are investing more and more into technology,” explains Tata. The company which is also a major supplier of micro-light chains and which recently bought the Nirvana brand, is now poised to launch new initiatives. %% Arshia Jewels has introduced an innovation of a different kind – kundan-meena jewellery that is contemporary in design and uses tanzanite instead of the traditionally used, more expensive emeralds and rubies. “If a product is good, and quality is assured, then it will always find ready buyers,” says Rupesh Tambi of Arshia. The company has also launched a 14k jewellery line to complement the 18k range that it offers. “The concepts in the two lines are not very different, but the lower gold content makes the 14k jewellery an attractive choice for younger, modern women across the top 20 cities of the country,” explains Tambi.

Doshi offers quite a different approach altogether. “If prices are going up, one approach that jewellers could take is to cater more to investment demand by producing very low value addition jewellery,” he suggests. “You could produce a product for which no design, no craftsmanship is required. For example, jewellery made by the stamping method. Or take the case of chains – you can have a one per cent value addition or a 30 per cent value addition. So if people want to invest in gold, they don’t have to buy bullion. Without spending too much extra on labour costs they can have gold which is also wearable and usable and not only stored away in lockers.” %% {{Plans to Assist the Consumer}}%% On the other hand, several retailers are also devising schemes to help consumers counter the impact of price rises and volatility which are widely seen to be depressing the market. One of the most common is a savings plan under which consumers deposit small amounts in installments to the jeweller over a period of time and then purchase jewellery of their choice at the end of the period. Particularities of the scheme may vary. Some even claim to offer protection against volatility. %% Reliance Jewels plans to introduce its plan in October this year under which consumers can invest with them upto a year and then buy gold at the rate prevailing on the date of maturity. Alternatively, a consumer can also choose to purchase small amounts of gold everyday for a year and then get jewellery equivalent to the grammage accumulated over the period at maturity. Thus freeing his/her purchase from the impact of gold price fluctuations. %% Tanishq launched its Swarnanidhi plan, based on gold g r a m m a g e accumulation, in June this year, across half its 130 outlets nationwide, and plans to extend it to its other stores by September. This is a twoyear scheme, under which consumers can invest a minimum of Rs 1,000, or multiples thereof, once a month. Upon each payment, gold grammage at the prevailing rate is credited to the customer’s account and upon maturity the consumer can buy jewellery of the equivalent amount of the total grammage accumulated. %% Bangalore-based C Krishniah Chetty and Sons, recently announced a scheme for buying/ saving for gold, silver and diamond jewellery. “The C. Krishniah Chetty and Sons’ Gold Standard 1869 Rate Protection Plan is symbolic of our commitment to our customers,” said Vinod Hayagriv, Managing Director, C. Krishniah Chetty and Sons. “It is a unique Rate Protection Plan best suited for salaried and business people alike.” He emphasises that their monthly savings scheme is different from others on two counts: Instead of the usual 12- 18 months duration, CKC’s plan runs for 60 months; it also enables consumers to shift from planned rate to prevailing rate in case the latter is lower on the scheme’s maturity. %% A World Gold Council study finds that these schemes are widely prevalent all over the country. According to reports Ajay Mitra, Managing Director (India, Middle East), World Gold Council, said that as many as 75 per cent of the total jewellers in Surat are offering such schemes, while in Ahmedabad, the number is slightly less at 64 per cent. He added that that in cities like Chennai, Madurai and Nagpur almost all the jewellers offered such schemes; in Bangalore, 94 per cent jewellers offered saving schemes, while in Mumbai 77 per cent jewellers practiced this method. %%

The widespread nature of these schemes itself is telling. There can be no doubt that the rising price of gold has created a strain on the consumer. While her budget cannot go up to the same extent, she is forced to trade down in terms of karatage or volume or both to accommodate her purchases in her budget. There is a section of opinion which states: “Gold is a rare and precious commodity – it’s price can only go up.” On the other hand many analysts feel that the present bull run has to end at some point, and even those who foresee a dip. Whatever the case, jewellers will have to exercise every ingenuity on two counts – to manage their businesses and to ensure that consumers keep returning to the jewellery counters. A Herculean task, but not an impossible one.

{{|*It’s not as if the rise was not expected. Jewellers were all anticipating the price rise, but at the new level, the challenge is to keep the sales up.*| -Ariez Tata}}

{{|*Theme-based jewellery; and a stylish, unique product is like a magnet for the high-end consumer*| - Rajendra Zaveri}}

{{|*Our new line of 18k bangles is 20 per cent lighter and 40 per cent cheaper.*| -Avinash Pahuja}}%% {{|*Price volatility is affecting the B2B trade to quite a great extent. It is holding up deals as well as restricting the flow of payments from our customers.*| -Mansukh Kothari}}

Gold prices, which have been steadily moving north over the last few years, went into their sharpest, steepest climb ever, in recent months, particularly in August this year. Over the last couple of years or so, the markets had watched in amazement as gold price conquered first one mark and then another and another; as it went from Rs. 10,000, to Rs. 15,000 to Rs. 20,000 per 10 gm, and were left stupefied when it hit the Rs. 28,000 per 10 gm mark in August 2011.%% There is now serious concern amongst jewellers. Earlier, the jewellery market had been taking the price rises in its stride. After all, the investment sentiment in a gold purchase has always been strong and if the value of your investment was on the upswing no one was complaining. However, one cannot forget that gold jewellery is almost a necessity in this country – no wedding is complete without it. Vast numbers of masses at different levels of purchasing power make up the market. At some point, resistance was bound to set in. If not in terms of numbers of people in the market, certainly in terms of volume of jewellery bought. While there have been dips in gold jewellery sales previously, in the long term, the growth trend prevailed. Will consumers also adjust to these new price levels? Will the demand continue to grow, or level out or in fact start retracting in the long term? Or will the prices crash? These are some of the questions that are coming up. What is more, fluctuations in prices which have for some time been a bane, have today definitely become a pain. Nilan Singh and Stephen Rego try to understand what recent gold price trends have meant to the market, and what entrepreneurs in the business are doing to cope with the situation.

There was a time when market savants would sit and debate over whether the gold price would reach the Rs.10,000 per 10 gm mark. In the gold jewellery market, it was the equivalent of the British penchant for discussing the weather. “What do you think, will gold hit 10,000?” Will it, won’t it, went the chant…and it did. As it steadily reached the Rs. 15,000 per 10 gm point, the guessing games stopped. Yes, it definitely will rise and keep rising. That was conclusion the collective wisdom of the market settled upon. But when gold prices crossed the Rs. 20,000 mark some months ago, the rapid rise which followed caused some ripples in the market. Arguably, the last six months have seen the steepest, sharpest climb of the gold price, certainly in a long time, maybe ever. (Graph A) %% {{New Peaks in Gold Prices}}%% Gold prices took off on a roller coaster ride during August 2011, starting the month with prices in the range of Rs 23,000, followed by a sharp escalation in the second and third weeks to touch the hitherto unheard of almost Rs 29,000 level, before declining to little below the Rs 27,000 mark as the month drew to a close. A number of analysts also pointed out that in the current rally, gold price exceeded the price of platinum, usually considered the costliest metal, on August 10. %% Ironically, the month end rates were already being viewed by a section of the market as a decline from the mid-month peak, rather than a sharp rise from where it began; reflecting the psychology of a community of gold investors and purchasers who are now fully accustomed to a cycle of ever escalating prices, that reach new peaks and then ‘stabilise’ at levels much above where they started from. %% It is fairly clear that the sudden spurt in August was driven by the financial uncertainty sparked off with the downgrading of the US credit rating from AAA to AA+ and fears of similar downgrades in major Eurozone economies, leading retail and institutional investors to the safe haven of gold. However, an added factor leading to increase in investment demand in the last couple of years has also been governments or central banks buying gold. A World Gold Council report notes that “During Q2 2011, central banks from emerging markets continued to add to their gold reserves, led by Mexico” and “collective central bank net purchases in 2011 have already surpassed the total of 2010”. Elsewhere it draws attention to the increase in gold holdings of the Bank for International Settlements (BIS), stating that “The BIS holdings of gold, as of March 2011, have increased by 63 tonnes from 2010, as a result of continuing gold swap operations…… under which the Bank exchanges currencies for physical gold.” %% The GFMS Gold Survey 2011 notes that in 2010 there was “a dramatic swing to net official sector purchases of some 73 tonnes”. It adds, “To put this into a longer term perspective, central banks as a whole were a consistent net seller from 1989 to 2009.” %% Over the last decade therefore, there has been a significant increase in gold investment demand and a complementary decrease in fabrication demand, and today jewellery accounts for just over 50 per cent of global gold demand. (Graph 1)

The dynamics in India, where gold jewellery was always viewed as an investment, have been slightly different, though the country has not remained immune to this trend. Investment demand which was under 10 per cent in the 1992 and rose to nearly 15 per cent about a decade ago, now constitutes almost 20 per cent of total demand. (Graph 2) Despite this, jewellery demand has continued to be strong, driven both by the large rural market, the rise in numbers and growing affluence of the middle class, and the ‘cash-purchase’ segment of the urban economy. (Graph 3) %% {{Impact on Demand}}%% However, if the current prices hold, what impact it will have remains to be seen. “From about Rs. 18,000, earlier, the gold price went to about Rs. 25,000 in mid-July,” says Konal Doshi of Modern Impex, manufacturer-exporter and wholesaler in the domestic market. “Earlier the demand held on the anticipation that prices would rise. But after it touched the Rs. 28,000 mark, there has been somewhat of a lull.” %% This was quite evident during the IIJS, as the final assault on the peak took place during the show. Several exhibitors confirmed that the high price had cast a cloud of apprehension over the show. Shailesh Sangani of Priority Jewels speaking to us at the show summed up the situation saying, “It’s not that buyers are not buying, but there is a general hesitancy and caution when placing orders.” %% Confirming Sangani’s view of the mood at the IIJS, Ariez Tata of Nascent Jewellery Pvt Ltd, owner of the Viola brand says, “IIJS is a time when the big buyers write their business for the year. This time the rising prices two weeks prior to the show, which reached their peak during the show, made them hesitant. They were mentally prepared to order, but held back especially due to the volatility.” However, he notes, “It’s not as if the rise was not expected. Jewellers were all anticipating the price rise, but at the new level, the challenge is to keep the sales up.” He does point out that the increase in gold prices is nowhere near being proportionate to the growth in the consumer’s spending power. This sentiment is also echoed by Prithviraj Kothari, president of the Bombay Bullion Association, who is reported to have said in an interview on the eve of the Indian season kicking off: “If prices stay at current levels, demand will be lower during the festival season. But if prices fall to 25,000 rupees (per 10 gms), then it will rise.” %% However, not everyone believes that demand has been impacted greatly, or across the entire market. Rajendra Zaveri of RBZ Jewellers of Ahmedabad feels that the high end of the segment which he caters to is not affected by the high gold prices; the mid-segment which he says comprises mainly of those buying wedding jewellery do feel the pinch; and it is most severely felt by those at the lower end of the segment who are extremely price sensitive, but they do not cater to that section. %% Avinash Pahuja of Raia Jewels, the owner of the Oro brand of jewellery, says that he has not experienced a drop in sales. “Every time prices go up, people tend to buy more jewellery,” he opines. “Traditionally, gold has been seen as the best investment and gold wearing not only considered auspicious, it is also a must for weddings.” %% {{Volatility Confounds the Market}}%% Though prices seem to be hovering around the Rs 27,000 mark – just below on Aug 31st and just above in the first few days of September – a factor which has further confounded the market is the high degree of volatility in gold price, not just on a weekly or daily basis but even in a single day. Manufacturers, especially medium and small businesses, seem to be in a cleft stick either which way.

Recent reports suggest that bullion dealers, afraid of payment defaults by their buyers have tightened up dealings in various ways. For one, they demand payment upfront and in cash. Also, the margin deposits have also been increased. Economic Times reported that Riddi-Siddhi Bullion (RSBL) a major dealer raised the margin deposit from Rs. 50,000 to Rs 1.5 lakh. “An increase in the margin deposit was necessitated the way prices have been moving recently,” Prithviraj Kothari, MD, RSBL, is reported to have commented. “The margin can be brought down if prices stabilise.” %% On the other side, as Mansukh Kothari of Vasupati Jewellers explains, “Price volatility is affecting the B2B trade to quite a great extent. Not only is there a weekly and daily fluctuation, even within a single day there will be one price in the morning and another in the evening. This is holding up deals as well as restricting the flow of payments from our customers.” %% Doshi notes that the volatility could be as much as 5 per cent to 6 per cent on a daily basis. “This makes it very difficult for a manufacturer to know at what price he can commit himself,” he says. “Even if he buys gold on an unfixed basis from a bank or hedges it on a commodity exchange, one is not sure at what price it will be sold.” He points out that there is however, a large segment in the market who feel that as gold is continuously going up, they need not worry about the immediate effects, as they will continue to benefit from this rise. “This is a very speculative way of doing business,” he notes. “One can get very badly hurt.” %% Zaveri agrees that more than the price, it is volatility which has a greater overall impact on the market. “Customers are just beginning to adapt to it, though they have not yet fully done so,” he says. He believes that the current trends are only going to be further emphasised in the immediate future. “Retailers are stocking, but they are very choosy about the jewellery they buy,” Zaveri adds. %%

{{|*Earlier, the demand held on the anticipation that prices would rise. But after it touched the Rs. 28,000 mark, there has been somewhat of a lull.*| -Konal Doshi}}

{{The Shift to Bullion}}%% The Indian gold market has always been investment oriented. Earlier, even when they were buying jewellery, one eye of the consumer was on the investment value of the purchase. At the time, other options were limited and hence buying gold in the form of jewellery was common for those whose main aim was investment. However, today, a variety of gold products from bullion – in the form of bars and coins – to paper, are all freely available in the modern gold marketplace. As noted earlier, there has been a strong growth in bullion sales. “There has been a huge surge in “non-labour” gold,” says Tata, commenting on the offtake of bullion and other direct forms of investment. %% Apart from pure investors, or those who are “playing” the market, there is also a segment of jewellery consumers who are turning to bullion. Kothari points out that unlike earlier times when even those who did not have a marriage immediately in the family would still purchase jewellery and build up the trousseau over the years, today prefer to buy bullion which can be converted to jewellery at a later date. %% Doshi sums it up saying: “While there is overall growth of the gold market, the jewellery business has been affected while the increase has gone into investment of raw gold.” %% {{Meeting the Challenges}}%% How then are jewellers coping with the various challenges thrown up by the current situation? What are the ways and means they adapt to overcome these? Kothari voices the most widespread reaction when he says, “One way of countering the price hikes is to make more lightweight jewellery with a heavier look, with good designs and a good finish.” %% Despite his assertion that his company has not experienced any retraction in sales as a result of the price rise, Pahuja has recently launched 18k gold bangles in the market - which is a first, in the traditionally 22k market - in order to make them more widely accessible. “Bangles are very popular with the Indian consumer,” Pahuja explains. “And as 18k gold is stronger, we are able to offer a larger look in lighter weight. The new line is 20 per cent lighter, and 40 per cent cheaper.” He expects the product to do well in the cities and says that it is already accounting for 10 per cent of sales and that by the end of the year is expected to attain a 20 per cent share. %% Zaveri says that his company is concentrating on manufacturing unique products. He feels that for the high-end consumer, theme-based jewellery and a stylish, unique product is like a magnet. Their most recent innovation is a collection based on the Mesopotamian Civilisation, widely regarded as one of the oldest civilisations in the world. “We did a lot of research into the jewellery of that period, to not only come up with the designs but also studied the methods of producing it and reproduced the effects,” says Zaveri. %%

Apart from this, Zaveri also points out that paying attention to technical aspects, usage of machinery and a greater use of stones for example, could make a difference to overall price and thereby counter the effects of gold prices to some extent. %% “Our specialty is in fact our lightweight product,” states Tata defining Nascent Jewellery’s USP. “We use the electroforming method which is very popular in Europe.” The company which was mainly into exports, decided to enter the Indian market as it had a specialised product. “There is such a scramble for space amongst brands,” explains Tata. “But if you have a unique product, it helps open doors.” That is just what the new entrant Viola has achieved. In the course of one year it has reached about 50 outlets. “We are investing more and more into technology,” explains Tata. The company which is also a major supplier of micro-light chains and which recently bought the Nirvana brand, is now poised to launch new initiatives. %% Arshia Jewels has introduced an innovation of a different kind – kundan-meena jewellery that is contemporary in design and uses tanzanite instead of the traditionally used, more expensive emeralds and rubies. “If a product is good, and quality is assured, then it will always find ready buyers,” says Rupesh Tambi of Arshia. The company has also launched a 14k jewellery line to complement the 18k range that it offers. “The concepts in the two lines are not very different, but the lower gold content makes the 14k jewellery an attractive choice for younger, modern women across the top 20 cities of the country,” explains Tambi.

Doshi offers quite a different approach altogether. “If prices are going up, one approach that jewellers could take is to cater more to investment demand by producing very low value addition jewellery,” he suggests. “You could produce a product for which no design, no craftsmanship is required. For example, jewellery made by the stamping method. Or take the case of chains – you can have a one per cent value addition or a 30 per cent value addition. So if people want to invest in gold, they don’t have to buy bullion. Without spending too much extra on labour costs they can have gold which is also wearable and usable and not only stored away in lockers.” %% {{Plans to Assist the Consumer}}%% On the other hand, several retailers are also devising schemes to help consumers counter the impact of price rises and volatility which are widely seen to be depressing the market. One of the most common is a savings plan under which consumers deposit small amounts in installments to the jeweller over a period of time and then purchase jewellery of their choice at the end of the period. Particularities of the scheme may vary. Some even claim to offer protection against volatility. %% Reliance Jewels plans to introduce its plan in October this year under which consumers can invest with them upto a year and then buy gold at the rate prevailing on the date of maturity. Alternatively, a consumer can also choose to purchase small amounts of gold everyday for a year and then get jewellery equivalent to the grammage accumulated over the period at maturity. Thus freeing his/her purchase from the impact of gold price fluctuations. %% Tanishq launched its Swarnanidhi plan, based on gold g r a m m a g e accumulation, in June this year, across half its 130 outlets nationwide, and plans to extend it to its other stores by September. This is a twoyear scheme, under which consumers can invest a minimum of Rs 1,000, or multiples thereof, once a month. Upon each payment, gold grammage at the prevailing rate is credited to the customer’s account and upon maturity the consumer can buy jewellery of the equivalent amount of the total grammage accumulated. %% Bangalore-based C Krishniah Chetty and Sons, recently announced a scheme for buying/ saving for gold, silver and diamond jewellery. “The C. Krishniah Chetty and Sons’ Gold Standard 1869 Rate Protection Plan is symbolic of our commitment to our customers,” said Vinod Hayagriv, Managing Director, C. Krishniah Chetty and Sons. “It is a unique Rate Protection Plan best suited for salaried and business people alike.” He emphasises that their monthly savings scheme is different from others on two counts: Instead of the usual 12- 18 months duration, CKC’s plan runs for 60 months; it also enables consumers to shift from planned rate to prevailing rate in case the latter is lower on the scheme’s maturity. %% A World Gold Council study finds that these schemes are widely prevalent all over the country. According to reports Ajay Mitra, Managing Director (India, Middle East), World Gold Council, said that as many as 75 per cent of the total jewellers in Surat are offering such schemes, while in Ahmedabad, the number is slightly less at 64 per cent. He added that that in cities like Chennai, Madurai and Nagpur almost all the jewellers offered such schemes; in Bangalore, 94 per cent jewellers offered saving schemes, while in Mumbai 77 per cent jewellers practiced this method. %%

The widespread nature of these schemes itself is telling. There can be no doubt that the rising price of gold has created a strain on the consumer. While her budget cannot go up to the same extent, she is forced to trade down in terms of karatage or volume or both to accommodate her purchases in her budget. There is a section of opinion which states: “Gold is a rare and precious commodity – it’s price can only go up.” On the other hand many analysts feel that the present bull run has to end at some point, and even those who foresee a dip. Whatever the case, jewellers will have to exercise every ingenuity on two counts – to manage their businesses and to ensure that consumers keep returning to the jewellery counters. A Herculean task, but not an impossible one.

{{|*It’s not as if the rise was not expected. Jewellers were all anticipating the price rise, but at the new level, the challenge is to keep the sales up.*| -Ariez Tata}}

{{|*Theme-based jewellery; and a stylish, unique product is like a magnet for the high-end consumer*| - Rajendra Zaveri}}

{{|*Our new line of 18k bangles is 20 per cent lighter and 40 per cent cheaper.*| -Avinash Pahuja}}%% {{|*Price volatility is affecting the B2B trade to quite a great extent. It is holding up deals as well as restricting the flow of payments from our customers.*| -Mansukh Kothari}}