With revenues shrinking from core operations due to falling demand, gold and jewellery dealers are resorting to inter-city arbitrage and exports to survive, experts said.
Since December, gold demand in India — the world’s biggest importer and consumer — has fallen significantly. While imports have fallen to zero in the last couple of months, jewellery demand has been negligible around 10 per cent of normal trade, said Nitin Khandelwal, director, All India Gems & Jewellery Trade Federation.
“Small traders can survive as their fixed cost is low, but middle-sized and bigger jewellers with brand value may find it difficult to survive if the current situation doesn’t improve in four to five months,” said Darshan Zaveri of Manubhai Zaveri Ornaments Pvt Ltd, an Ahmedabad-based high-end jewellery supplier.
Some jewellers, having multi-city presence in the country, get a 1 per cent return from inter-city arbitrage, cashing in on price volatility, said a Chennai-based dealer.
“Chennai is the most price sensitive market in India. When demand for gold falls, it sells in Chennai at more than 1 per cent discount to Kolkata and Mumbai prices,” the dealer said.
Sudden increase in price and volatility creates a big gap in local and overseas prices as domestic market is price-sensitive.
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“Some dealers exported gold coins in February to cash in on discounts in domestic market prevailing at that time,” said Suresh Hundia, president, Bombay Bullion Association.
In February, gold soared to $1,000 an ounce on the back of huge investment demand globally.
However, physical demand in India nose-dived to less than 10 per cent.
This led to domestic prices trading at a discount of $15-20 an ounce, making gold coin exports attractive for some local dealers.
This is the first time the world’s largest gold importer became exporter of the metal.
“However, most of the exports went to overseas units of the local traders only, who sold the metal in their country, earning additional income via arbitrage, which helped cover fixed costs,” said Krishna Nathani, managing director of Hyderabad-based bullion consultancy.
An official of a bullion refinery said, some dealers exported old jewellery, purchased at huge discount in the local market, to Gulf countries for refining.
“As gold bars refined at the Emirates Refinery command a premium due to their acceptability at London Bullion Market Association dealers gets good returns from arbitrage in the transaction,” Nathani said.
Hundia said, that since the gap in local and overseas prices has narrowed down to $4-5 currently, exports are not occurring at present.