Most individually-run jewellery shops on Saturday remained closed in Mumbai, opting not to sell ornaments at a lower price in the wake of two days of continuous fall in gold and silver prices.
“Many jewellers built their inventory at a price between $1,800 and $1,850 an oz in anticipation of the yellow metal touching $2,000. They will not like to sell gold at a loss. Hence, closing the shops and waiting for a revival makes business sense,” said a jeweller based in the city.
Generally, updated prices are displayed on a ticker board in each of BIS hallmark jewellery shops. Sometimes, they also get an update from their gold suppliers in case of high volatility. But when price declines to abnormally low, the jewellers prefer to shut shop for a couple of days and wait for recovery in prices for higher realisation of their inventory. In case of stability in prices after a drastic decline, the jewellers try to hedge gold equal to the quantity of orders from consumers.
Gold price fell 7 per cent in London in the last three days to settle at $1,656.80 an oz on Friday. Similarly, silver plunged by a staggering 21.53 per cent to close at $31.14 an oz.
In the domestic market, however, the decline was a bit restricted with the yellow metal falling 4.17 per cent to close at Rs 26,860 for 10 grams in physical market here on Saturday. Silver declined 14.40 per cent in the last three days to close at Rs 54,275 a kg on Saturday. The price movement in the global market commonly gets reflected in the domestic market the following day.
The closure of shops also coincided with the ongoing 15-day period of ‘shraddh’. During this period, jewellery sales decline as buyers stay away from gold. “So, the closure for a couple of days is unlikely to affect our overall monthly sales,” said Vipul Soni, a jewellery shop owner in Virar, a western Mumbai suburb.
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Jewellers in the unorganised sector largely owned by traditionally-run individuals contribute over 50 per cent to India's gold jewellery sales. The organised retailers do not change their business decisions depending upon the volatility in bullion prices.
According to trade sources, bullion traders have lost around Rs 750 crore in the last two days on futures exchanges due to decline in prices. The loss was largely because of clients' inability to square off their position amid continuous fall in prices. The margin paid by clients to members for executing trade on exchange platform apparently exhausted within few hours of the beginning of evening trade.
Unfortunately, clients could not pay out the margin immediately as banks were not operational at night. Hence, clients were left with no option but to ‘wait and watch’ their own bankruptcy, said an analyst.
Margin is an amount which clients keep with exchanges for executing trade. Additional margins, however, are kept with the brokerages for their safeguard in case of high volatility in commodity prices.
Friday's price decline called for at least Rs 400 crore of pay in from both sides on Saturday, according to sources. Commodity brokerages, however, asked for 4-5 per cent of additional margin to keep their business afloat. According to Naveen Mathur, associate director of Angel Broking, additional margin was a saviour for brokerages who did not offer any extra leverages to their clients.