Goldilocks days: Demand moderates for yellow metal

Exchange of old ornaments for new is keeping the business going at jewelleries, with prices holding firm after demonetisation

November 16, 2016 02:48 am | Updated December 02, 2016 03:41 pm IST

HYDERABAD, TELANGANA, 14/11/2016: Markets Plunge as currency notes continue the domination as Gold business registered a sharp decline in the past couple of days, directly linked to the demonetisation of the notes of the denomination of Rs. 1,000 and Rs. 500. Even as jewellers put up boards  saying NO to these notes, people who had them could not use the same to buy jewellery.
Photo: Mohammed Yousuf

HYDERABAD, TELANGANA, 14/11/2016: Markets Plunge as currency notes continue the domination as Gold business registered a sharp decline in the past couple of days, directly linked to the demonetisation of the notes of the denomination of Rs. 1,000 and Rs. 500. Even as jewellers put up boards saying NO to these notes, people who had them could not use the same to buy jewellery. Photo: Mohammed Yousuf

Jewellers are bracing themselves for a winter of low demand as cash in consumer pockets has dwindled after the demonetisation move.

Shops in Delhi, Chennai, Bengaluru, Thiruvanantha- puram, Vijayawada and Hyderabad report a halving of sales, with only a minority of purchases shifting to card payments. Exchange of old gold ornaments for new is keeping the business going. The price of the yellow metal, however, has not plunged.

Retail 22-carat gold in Chennai was Rs. 2,878 per gram on November 8, the day the Prime Minister made the announcement on removing Rs. 1,000 and Rs. 500 as legal tender. It rose to Rs. 3060 a day later, but marginally declined later, staying at Rs. 2,898 on Tuesday — higher than the rate before the currency decision.

Gold traders in Tiruvannamalai town, Tamil Nadu, claim that 24-carat gold with a market price of nearly Rs. 31 lakh per kg was being sold for even Rs. 42 lakh, indicating that unaccounted-for money was used to convert the cash at a premium.

In Delhi, Balram Garg, administration committee member, Gem and Jewellery Export Promotion Council and managing director, PC Jeweller, says the 12 per cent tax and duty on gold (10 per cent import duty, 1 per cent VAT and 1 per cent excise duty) is also hurting the sector. The government should sharply bring this down, he argues.

A bar on gold imports in an intensified crackdown on black money or a further hike in duties would encourage smuggling, the trade argues. Duty on the precious metal was two per cent in January 2012, and the low duty motivated more players to enter the formal stream, now making up a third of the business.

The gold jewellery sector accepts payment by credit and debit card, cheque and in new high value currency as well as denominations of Rs. 100 and below, but not Rs. 500 and Rs. 1000 notes.

Low duty structure Transparency in gold sales depends on a low duty structure, and not just requirements such as mandatory PAN card or the Goods and Services Tax legislation, Mr. Garg says.

Telangana’s jewellers fear a slump of 70 per cent. In Hyderabad, “this could be the position lasting anywhere between three and six months until the monetary situation improves,” said Praveen Kumar, Secretary, Twin Cities Jewellers Association.

Like consumers elsewhere, fewer people have enough cash in hand in Bengaluru, hitting sales by 50 to 70 per cent.

There are over 25,000 jewellery shops in Karnataka, and nearly 5,000 in Bengaluru. “More than half of the buyers pay in cash. Only around 20 per cent pay by card, and the rest sell old gold. Only those with imminent weddings come to shops,” said T.S. Sarvana, President of the Karnataka Jewellery Association and Janata Dal (Secular) MLC.

A day after the announcement, sales surged as many sought to convert “banned” notes into tangible gold assets.

The uncertainty and slump would continue for three months before new high denomination notes percolate, said S. Venkatesh Babu, President of the Jeweller’s Association, Bengaluru. Traders in Vijayawada also peg their declining sales at half the normal. “Business is dull because people have no liquidity,” says Jogu Lamba, a Tanishq franchisee.

The jewellery industry views its prospects as bad due to low demand despite the wedding season. “The situation is the same across our 68 showrooms in the country,” says S. Sudheesh, Marketing Executive (Operations), for Joyalukkas.

Kerala’s gold jewellers also say business dropped 50 per cent, but big jewellers have seen a small increase over Sunday and Monday as purchasers switched to cards and cheques.

Small-time gold sellers are the hardest hit, as they depend on cash transactions and they cannot accept old Rs. 1,000 and Rs. 500 notes, he said.

Big jewellery showrooms report brisk exchange of gold even though the festival and marriage season is coming to an end. “Usually the season lasts up to about November 20, but this year the currency situation has ended it early,” a manager in a jewellery shop says.

Jewellery hubs across Tamil Nadu wear a deserted look. “It will take up to three months for the trade to recover,” according to G. Dhamodaran, Secretary, Tiruchi District Jewellery Association

(With Arun S., P. Sujatha Varma, Rohit P.S., K.A. Martin, Mohit M. Rao, Nahla Nainar, A.D. Balasubramaniyan, and K. Lakshmi)

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