The high price of the main raw materials of jewellery – gold and diamonds – has been the most popular topic of discussion in the gems and jewellery business in recent months. As the world emerged from the immediate stupor that the financial crisis had produced and got back to business, prices of raw materials resumed their upward march. The question before the industry is will these prices sustain at the retail level? Nilan Singh gauges the mood by speaking to a few retailers. %% T he prices of diamonds and gold have been flying up, up and away, soaring like merry kites caught in a favourable wind. Over the last year and more, this has been the experience of jewellery retailers all across the country. %% According to the World Gold Council, “The gold price continued its upward trend, rising during the first quarter of 2011 by 2.4% to finish the quarter at US$ 1,439/oz, on the London PM fix.” The WGC report goes on to say, “On average, gold prices increased by 1.4% to US$ 1,386.27/oz in Q1 2011 from US$ 1,366.78/oz in Q4 2010. While gold experienced a price consolidation in the early part of the quarter, falling as low as US$ 1,319.00/oz on 29 January, it climbed to new record highs throughout March and continues to achieve new highs in April.” %% The story for polished diamonds was no different. According to leading industry analysts, polished prices which had shown a downward trend from the last quarter of 2008 through early 2009, began picking up later that year, rose steadily through 2010, sharply in the first months of 2011, and by March this year had outstripped the previous high of August 2008. %% These prices were, not surprisingly, sustained on the back of solid demand which kept the industry ticking and on the move. This demand was particularly evident at the Hong Kong trade fair in March where diamond traders reported a virtual sell-out despite extremely high prices of polished. What is more, reports from the floor suggested that this demand came mainly from India and China and less from the western world.

Of course it is one thing for there to be a brisk trade between B2B buyers and sellers. The consumer is a bird of another feather. And there has been much anxiety on two counts within the jewellery trade – whether the consumer will adapt to the consequently higher price tags that jewellery will carry; and whether the high polished prices are a bubble which will burst. Should the latter happen a section of the trade will be left holding an empty purse with no way of recovering what has been spent. %% Where gold is concerned, there is less of a dilemma. Consumers buy jewellery on a rate of gold plus labour basis. Hence there is no “inventory” loss as such. Here the question merely is whether demand as a whole will reduce. %% “Prices have risen by 30-40% for diamonds since last November-December,” says Yogendra Kimtee of Indore-based retailer Interstar. “Gold prices have been rising continuously as well. However for gold prices there is transparency and there is a clearly indicated price. For diamonds there is no meter, every month prices are rising and there is no standard. That affects consumers.” Kimtee says that the rise in prices has led to some stagnation in sales of diamond jewellery as consumers resist the new prices and “we are not interested in selling at old prices” as that is not sustainable. %% Kishor Seth of Batukbhai and Sons, Nagpur however feels that there has not been a major impact on jewellery purchases. "If you fill petrol of Rs. 100, you will continue to fill it, even though you get less petrol for the price,” he says using an analogy. “The customers have always adjusted to prices.” He adds, “Fifty years ago also they said the prices were high, 20 years back they said the same and today they are saying it also. But if people need to buy jewellery, they will do so adjusting the volume to their budget.” Where diamonds are concerned, Seth feels that consumers tend to adjust the type and quality of diamonds to be able to fit them into their budget. This trading down effect has been noticed by other jewellers as well.

Also, generally the retailers were of the opinion that while consumers settle down to accepting rising and even high jewellery prices, it is the volatility of gold prices that actually have a negative impact. %% Kailash Mosun of JKJ & Sons Jewellers, Jaipur feels that there is an impact, but not necessarily of cutting out demand. “People say, if the price of gold reduces we will buy,” he says, implying that purchase may be deferred to some extent, unless there is a particular need for the jewellery. Additionally, he feels, “Demand may not go away but budget is affected. And hence people will get less volume products for the same price that they are willing to pay.” His opinion is that the jewellery market is increasing in terms of rupees but not necessarily in terms of volume. %% Ramesh Narang of Hazoorilal Jewellers of New Delhi has not yet seen any shrinking of demand. “We have had no drastic impact of the high prices,” he says. “Yet we have to see in the coming years”. Narang is also confident that the rising cost of jewellery will not drive away consumers from this category to others. %% Seth however provides an interesting insight. “One area where we have lost out on is in the Rs. 5000-6000 gold gifting category,” he observes. “Earlier there were many people buying in this segment. Now you cannot get anything in this range and hence people are moving to other categories. We have not been able to convert these consumers to silver.” %% However, Mosun points out that increase in gold and diamond prices is actually a healthy sign for the industry. “In the long term, it is necessary for prices to rise,” he says. “If that doesn't happen, people will lose interest in buying jewellery, and it will lose value from the investment point of view.” %% On the other hand there seems to be a consensus that the consumer today has a greater expendable income. “Purchasing power of consumers has definitely increased,” avers Seth. Kimtee echoes the sentiment when he says “India has been doing fantastically” and that people have a lot of money to spend. This observation is borne out by the actual statistics, which not only show the Indian economy growing at a healthy rate of roughly 8% or so predicted for this year, but also a very high rate of growth for its HNIs and increasing wealth for its middle class.

While the shop level perspective no doubt offers valuable insights and provides a reality check, the broad picture perhaps knits all reality together. In this context, the observations in the World Gold Council's Gold Investment Digest – First Quarter 2011 are interesting. “At a country level, the Indian jewellery market was undoubtedly the star performer during the year,” the GDI notes. “Demand rose 69% above 2009 levels, a year-over-year increase of 303 tonnes to a record 746 tonnes. This was a significant increase on the previous record of 658 tonnes in 1998. In domestic value terms, growth was all the more impressive. Consumers spent Rs1.34 trillion on jewellery, double the amount spent during the previous year. Buying has been consistently buoyant despite rising gold prices, providing evidence that while gold demand may have an inverse relationship to price, growth in income and wealth among others, can counter these effects. Furthermore, a decline in price volatility over the past few years has lent itself to a more orderly ascent for gold and an increasing confidence in it. While Indians are more prolific buyers of jewellery than investment products by our definition, they do not draw a clear distinction between the two – as gold serves both purposes.” %% On the other hand, De Beers analysis has shown that the Indian diamond market grew by 31% in 2010 and the company expects growth for 2011 to be around 20-25%. The diamond dream is certainly capturing many more eyes. %% Though increased prices of jewellery may cause consumers to pause for a moment they are certainly not going to make them stop making purchases.

{{“We have had no drastic impact of the high prices. Yet we have to see in the coming years.”$$ -Ramesh Narang}}

{{“Prices have risen by 30-40% for diamonds since last November-December. Gold prices have been rising continuosly as well. However for gold prices there is transparency and there is a clearly indicated price. For diamonds there is no meter, every month prices are rising and there is no standard. That affects consumers.” $$ -Yogendra Kimtee}}

{{“The customers have always adjusted to prices. Fifty years ago also they said the prices were high, 20 years back they said the same and today they are saying the same thing. But if people need to buy jewellery, they will do so adjusting the volume to their budget.”$$ - Kishor Seth}}

{{“In the long term, it is necessary for prices to rise. If that doesn't happen, people will lose interest in buying jewellery, and it will lose value from the investment point of view.”$$ -Kailash Mosun}}

The high price of the main raw materials of jewellery – gold and diamonds – has been the most popular topic of discussion in the gems and jewellery business in recent months. As the world emerged from the immediate stupor that the financial crisis had produced and got back to business, prices of raw materials resumed their upward march. The question before the industry is will these prices sustain at the retail level? Nilan Singh gauges the mood by speaking to a few retailers. %% T he prices of diamonds and gold have been flying up, up and away, soaring like merry kites caught in a favourable wind. Over the last year and more, this has been the experience of jewellery retailers all across the country. %% According to the World Gold Council, “The gold price continued its upward trend, rising during the first quarter of 2011 by 2.4% to finish the quarter at US$ 1,439/oz, on the London PM fix.” The WGC report goes on to say, “On average, gold prices increased by 1.4% to US$ 1,386.27/oz in Q1 2011 from US$ 1,366.78/oz in Q4 2010. While gold experienced a price consolidation in the early part of the quarter, falling as low as US$ 1,319.00/oz on 29 January, it climbed to new record highs throughout March and continues to achieve new highs in April.” %% The story for polished diamonds was no different. According to leading industry analysts, polished prices which had shown a downward trend from the last quarter of 2008 through early 2009, began picking up later that year, rose steadily through 2010, sharply in the first months of 2011, and by March this year had outstripped the previous high of August 2008. %% These prices were, not surprisingly, sustained on the back of solid demand which kept the industry ticking and on the move. This demand was particularly evident at the Hong Kong trade fair in March where diamond traders reported a virtual sell-out despite extremely high prices of polished. What is more, reports from the floor suggested that this demand came mainly from India and China and less from the western world.

Of course it is one thing for there to be a brisk trade between B2B buyers and sellers. The consumer is a bird of another feather. And there has been much anxiety on two counts within the jewellery trade – whether the consumer will adapt to the consequently higher price tags that jewellery will carry; and whether the high polished prices are a bubble which will burst. Should the latter happen a section of the trade will be left holding an empty purse with no way of recovering what has been spent. %% Where gold is concerned, there is less of a dilemma. Consumers buy jewellery on a rate of gold plus labour basis. Hence there is no “inventory” loss as such. Here the question merely is whether demand as a whole will reduce. %% “Prices have risen by 30-40% for diamonds since last November-December,” says Yogendra Kimtee of Indore-based retailer Interstar. “Gold prices have been rising continuously as well. However for gold prices there is transparency and there is a clearly indicated price. For diamonds there is no meter, every month prices are rising and there is no standard. That affects consumers.” Kimtee says that the rise in prices has led to some stagnation in sales of diamond jewellery as consumers resist the new prices and “we are not interested in selling at old prices” as that is not sustainable. %% Kishor Seth of Batukbhai and Sons, Nagpur however feels that there has not been a major impact on jewellery purchases. "If you fill petrol of Rs. 100, you will continue to fill it, even though you get less petrol for the price,” he says using an analogy. “The customers have always adjusted to prices.” He adds, “Fifty years ago also they said the prices were high, 20 years back they said the same and today they are saying it also. But if people need to buy jewellery, they will do so adjusting the volume to their budget.” Where diamonds are concerned, Seth feels that consumers tend to adjust the type and quality of diamonds to be able to fit them into their budget. This trading down effect has been noticed by other jewellers as well.

Also, generally the retailers were of the opinion that while consumers settle down to accepting rising and even high jewellery prices, it is the volatility of gold prices that actually have a negative impact. %% Kailash Mosun of JKJ & Sons Jewellers, Jaipur feels that there is an impact, but not necessarily of cutting out demand. “People say, if the price of gold reduces we will buy,” he says, implying that purchase may be deferred to some extent, unless there is a particular need for the jewellery. Additionally, he feels, “Demand may not go away but budget is affected. And hence people will get less volume products for the same price that they are willing to pay.” His opinion is that the jewellery market is increasing in terms of rupees but not necessarily in terms of volume. %% Ramesh Narang of Hazoorilal Jewellers of New Delhi has not yet seen any shrinking of demand. “We have had no drastic impact of the high prices,” he says. “Yet we have to see in the coming years”. Narang is also confident that the rising cost of jewellery will not drive away consumers from this category to others. %% Seth however provides an interesting insight. “One area where we have lost out on is in the Rs. 5000-6000 gold gifting category,” he observes. “Earlier there were many people buying in this segment. Now you cannot get anything in this range and hence people are moving to other categories. We have not been able to convert these consumers to silver.” %% However, Mosun points out that increase in gold and diamond prices is actually a healthy sign for the industry. “In the long term, it is necessary for prices to rise,” he says. “If that doesn't happen, people will lose interest in buying jewellery, and it will lose value from the investment point of view.” %% On the other hand there seems to be a consensus that the consumer today has a greater expendable income. “Purchasing power of consumers has definitely increased,” avers Seth. Kimtee echoes the sentiment when he says “India has been doing fantastically” and that people have a lot of money to spend. This observation is borne out by the actual statistics, which not only show the Indian economy growing at a healthy rate of roughly 8% or so predicted for this year, but also a very high rate of growth for its HNIs and increasing wealth for its middle class.

While the shop level perspective no doubt offers valuable insights and provides a reality check, the broad picture perhaps knits all reality together. In this context, the observations in the World Gold Council's Gold Investment Digest – First Quarter 2011 are interesting. “At a country level, the Indian jewellery market was undoubtedly the star performer during the year,” the GDI notes. “Demand rose 69% above 2009 levels, a year-over-year increase of 303 tonnes to a record 746 tonnes. This was a significant increase on the previous record of 658 tonnes in 1998. In domestic value terms, growth was all the more impressive. Consumers spent Rs1.34 trillion on jewellery, double the amount spent during the previous year. Buying has been consistently buoyant despite rising gold prices, providing evidence that while gold demand may have an inverse relationship to price, growth in income and wealth among others, can counter these effects. Furthermore, a decline in price volatility over the past few years has lent itself to a more orderly ascent for gold and an increasing confidence in it. While Indians are more prolific buyers of jewellery than investment products by our definition, they do not draw a clear distinction between the two – as gold serves both purposes.” %% On the other hand, De Beers analysis has shown that the Indian diamond market grew by 31% in 2010 and the company expects growth for 2011 to be around 20-25%. The diamond dream is certainly capturing many more eyes. %% Though increased prices of jewellery may cause consumers to pause for a moment they are certainly not going to make them stop making purchases.

{{“We have had no drastic impact of the high prices. Yet we have to see in the coming years.”$$ -Ramesh Narang}}

{{“Prices have risen by 30-40% for diamonds since last November-December. Gold prices have been rising continuosly as well. However for gold prices there is transparency and there is a clearly indicated price. For diamonds there is no meter, every month prices are rising and there is no standard. That affects consumers.” $$ -Yogendra Kimtee}}

{{“The customers have always adjusted to prices. Fifty years ago also they said the prices were high, 20 years back they said the same and today they are saying the same thing. But if people need to buy jewellery, they will do so adjusting the volume to their budget.”$$ - Kishor Seth}}

{{“In the long term, it is necessary for prices to rise. If that doesn't happen, people will lose interest in buying jewellery, and it will lose value from the investment point of view.”$$ -Kailash Mosun}}

The high price of the main raw materials of jewellery – gold and diamonds – has been the most popular topic of discussion in the gems and jewellery business in recent months. As the world emerged from the immediate stupor that the financial crisis had produced and got back to business, prices of raw materials resumed their upward march. The question before the industry is will these prices sustain at the retail level? Nilan Singh gauges the mood by speaking to a few retailers. %% T he prices of diamonds and gold have been flying up, up and away, soaring like merry kites caught in a favourable wind. Over the last year and more, this has been the experience of jewellery retailers all across the country. %% According to the World Gold Council, “The gold price continued its upward trend, rising during the first quarter of 2011 by 2.4% to finish the quarter at US$ 1,439/oz, on the London PM fix.” The WGC report goes on to say, “On average, gold prices increased by 1.4% to US$ 1,386.27/oz in Q1 2011 from US$ 1,366.78/oz in Q4 2010. While gold experienced a price consolidation in the early part of the quarter, falling as low as US$ 1,319.00/oz on 29 January, it climbed to new record highs throughout March and continues to achieve new highs in April.” %% The story for polished diamonds was no different. According to leading industry analysts, polished prices which had shown a downward trend from the last quarter of 2008 through early 2009, began picking up later that year, rose steadily through 2010, sharply in the first months of 2011, and by March this year had outstripped the previous high of August 2008. %% These prices were, not surprisingly, sustained on the back of solid demand which kept the industry ticking and on the move. This demand was particularly evident at the Hong Kong trade fair in March where diamond traders reported a virtual sell-out despite extremely high prices of polished. What is more, reports from the floor suggested that this demand came mainly from India and China and less from the western world.

Of course it is one thing for there to be a brisk trade between B2B buyers and sellers. The consumer is a bird of another feather. And there has been much anxiety on two counts within the jewellery trade – whether the consumer will adapt to the consequently higher price tags that jewellery will carry; and whether the high polished prices are a bubble which will burst. Should the latter happen a section of the trade will be left holding an empty purse with no way of recovering what has been spent. %% Where gold is concerned, there is less of a dilemma. Consumers buy jewellery on a rate of gold plus labour basis. Hence there is no “inventory” loss as such. Here the question merely is whether demand as a whole will reduce. %% “Prices have risen by 30-40% for diamonds since last November-December,” says Yogendra Kimtee of Indore-based retailer Interstar. “Gold prices have been rising continuously as well. However for gold prices there is transparency and there is a clearly indicated price. For diamonds there is no meter, every month prices are rising and there is no standard. That affects consumers.” Kimtee says that the rise in prices has led to some stagnation in sales of diamond jewellery as consumers resist the new prices and “we are not interested in selling at old prices” as that is not sustainable. %% Kishor Seth of Batukbhai and Sons, Nagpur however feels that there has not been a major impact on jewellery purchases. "If you fill petrol of Rs. 100, you will continue to fill it, even though you get less petrol for the price,” he says using an analogy. “The customers have always adjusted to prices.” He adds, “Fifty years ago also they said the prices were high, 20 years back they said the same and today they are saying it also. But if people need to buy jewellery, they will do so adjusting the volume to their budget.” Where diamonds are concerned, Seth feels that consumers tend to adjust the type and quality of diamonds to be able to fit them into their budget. This trading down effect has been noticed by other jewellers as well.

Also, generally the retailers were of the opinion that while consumers settle down to accepting rising and even high jewellery prices, it is the volatility of gold prices that actually have a negative impact. %% Kailash Mosun of JKJ & Sons Jewellers, Jaipur feels that there is an impact, but not necessarily of cutting out demand. “People say, if the price of gold reduces we will buy,” he says, implying that purchase may be deferred to some extent, unless there is a particular need for the jewellery. Additionally, he feels, “Demand may not go away but budget is affected. And hence people will get less volume products for the same price that they are willing to pay.” His opinion is that the jewellery market is increasing in terms of rupees but not necessarily in terms of volume. %% Ramesh Narang of Hazoorilal Jewellers of New Delhi has not yet seen any shrinking of demand. “We have had no drastic impact of the high prices,” he says. “Yet we have to see in the coming years”. Narang is also confident that the rising cost of jewellery will not drive away consumers from this category to others. %% Seth however provides an interesting insight. “One area where we have lost out on is in the Rs. 5000-6000 gold gifting category,” he observes. “Earlier there were many people buying in this segment. Now you cannot get anything in this range and hence people are moving to other categories. We have not been able to convert these consumers to silver.” %% However, Mosun points out that increase in gold and diamond prices is actually a healthy sign for the industry. “In the long term, it is necessary for prices to rise,” he says. “If that doesn't happen, people will lose interest in buying jewellery, and it will lose value from the investment point of view.” %% On the other hand there seems to be a consensus that the consumer today has a greater expendable income. “Purchasing power of consumers has definitely increased,” avers Seth. Kimtee echoes the sentiment when he says “India has been doing fantastically” and that people have a lot of money to spend. This observation is borne out by the actual statistics, which not only show the Indian economy growing at a healthy rate of roughly 8% or so predicted for this year, but also a very high rate of growth for its HNIs and increasing wealth for its middle class.

While the shop level perspective no doubt offers valuable insights and provides a reality check, the broad picture perhaps knits all reality together. In this context, the observations in the World Gold Council's Gold Investment Digest – First Quarter 2011 are interesting. “At a country level, the Indian jewellery market was undoubtedly the star performer during the year,” the GDI notes. “Demand rose 69% above 2009 levels, a year-over-year increase of 303 tonnes to a record 746 tonnes. This was a significant increase on the previous record of 658 tonnes in 1998. In domestic value terms, growth was all the more impressive. Consumers spent Rs1.34 trillion on jewellery, double the amount spent during the previous year. Buying has been consistently buoyant despite rising gold prices, providing evidence that while gold demand may have an inverse relationship to price, growth in income and wealth among others, can counter these effects. Furthermore, a decline in price volatility over the past few years has lent itself to a more orderly ascent for gold and an increasing confidence in it. While Indians are more prolific buyers of jewellery than investment products by our definition, they do not draw a clear distinction between the two – as gold serves both purposes.” %% On the other hand, De Beers analysis has shown that the Indian diamond market grew by 31% in 2010 and the company expects growth for 2011 to be around 20-25%. The diamond dream is certainly capturing many more eyes. %% Though increased prices of jewellery may cause consumers to pause for a moment they are certainly not going to make them stop making purchases.

{{“We have had no drastic impact of the high prices. Yet we have to see in the coming years.”$$ -Ramesh Narang}}

{{“Prices have risen by 30-40% for diamonds since last November-December. Gold prices have been rising continuosly as well. However for gold prices there is transparency and there is a clearly indicated price. For diamonds there is no meter, every month prices are rising and there is no standard. That affects consumers.” $$ -Yogendra Kimtee}}

{{“The customers have always adjusted to prices. Fifty years ago also they said the prices were high, 20 years back they said the same and today they are saying the same thing. But if people need to buy jewellery, they will do so adjusting the volume to their budget.”$$ - Kishor Seth}}

{{“In the long term, it is necessary for prices to rise. If that doesn't happen, people will lose interest in buying jewellery, and it will lose value from the investment point of view.”$$ -Kailash Mosun}}