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Jewellery & bullion industry : geopolitical issues, rate cuts by US Fed could keep gold rates high

Leading players and analysts from the Jewellery and bullion industry held discussions on the gold price outlook and related issues about the industry. The meeting was organised by Kamakhya Jewels. Present at the meeting were Mr. Manoj Jha, MD, Kamakhya Jewels, Mr. Prithviraj Kothari, President, IBJA; Mr. Suvankar Sen, CEO, Senco Gold & Diamonds; Mr. Dinesh Jain, Director, P.M. Shah & Co Jewellers; Mr. Mrityunjay Jha · Anchor, Commodity Editor, Zee Business; Mr. Kumar Jain, National Spokesperson, IBJA; Mr. Surendra Mehta, National Secretary, IBJA; Mr. Kamal Singhania, Director, Aabhushan India & many distinguished dignitaries of the industry who provided insights into the gold market.

In terms of the price, there was a majority that saw prices remaining higher due to geopolitical issues, potential of financial crisis to re-emerge and due to expectations of a rate cuts by the US Fed soon. On the other side, some others felt that the chances of interest rates remaining ‘higher for longer’ will lead to a price correction as the market realises soon that rate cuts are not coming anytime soon.

In terms of demand, current prices have led to a consumer demand slump not just in India but also in many key markets across the world. Institutional investment is the key driver of prices currently. In this regard, it was noted that institutional investors are opportunistic and can also become sellers quite quickly.

Central bank demand due to de-dollarisation is expected to provide a floor to prices and will prevent a major selloff that goes beyond $1600. Many felt that $1,800 is the new floor for the price.

In terms of the Indian prices, chances of the price touching Rs 62000-63000 was not ruled out but there is a risk that import duty cuts in the future combined with rupee appreciation could lead to a correction in prices.

In terms of industry dynamics, it was felt that organised players are gaining market share; a big reason for their profitability is their Treasury department. Most jewellers have limited understanding of such operations and it is important for retailers to realise the importance of Treasury operations and how best they can use hedging and trading strategies to optimise their revenue.

The industry experts felt that higher gold prices could lead to further light-weighting of jewellery and increasing market share of 18k and 14k jewellery. Most agreed that this is a threat to gold demand and while 14k has very small market, 18k is increasingly finding acceptability across India. Jewellers will eventually market these products to consumers even if consumers prefer 22k due to higher margins available.

The potential/threat from lab grown diamonds was also discussed. Many felt that these diamonds will be the future as buyback options which were earlier not available have been now made available by many retailers. Large manufacturers have now entered this space and it is onlyv a matter of time that good marketing helps this industry grow even faster. This could lead to higher sales of diamond jewellery as more people will be able to afford diamond jewellery which in turn could help gold demand as well.

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