The Hindu Business Line : Don’t despair when gold becomes expensive

According to the latest statistics published by World Gold Council, jewellery demand in India is down by 31 per cent in the second quarter of the year, relative to the same period in 2008.

The report attributes the decline in demand to the steep increase in gold prices. The Indian tendency is to hold cash and wait for an opportunity to buy gold at lower prices.

So what are the options available to jewellery buyers when prices shoot up? How do people really react to rising prices?

Lower grammage

To start with, as the above statistics show, several consumers cut back on purchases. But they may not refrain from buying; they may opt for lower grammage jewellery.

“There is an impact on jewellery sales in grammage terms as prices rise, as is evidenced in the past year. But, we have still achieved volume growth over the last five year. The last 18 months have been an exception, when the rates have been very volatile. This has impacted gold consumption in volume terms,” says Mr Sandeep Kulhalli, Vice President, Retail and Marketing, Tanishq.

There are also others who believe that gold prices will anyway head higher over the long term, and they decide to buy right away.

“I think it’s bizarre to expect gold prices to stabilise or fall,” claims Arthi Srikanth, a banker who made a gold purchase recently. “I bought a necklace when a gram of gold was at Rs 1,400. My friends chided me for spending so much money to buy a necklace. But now when gold is Rs 1,580, I feel I’ve made a good decision.”

In the last one year, gold prices have appreciated by about 24 per cent.

A store manager of a Tanishq shop in Chennai says footfalls have been increasing in the last three weeks as people fear that gold is going to become more expensive in the coming months.

No cutting corners

If people are not cutting back on purchases, do they attempt to strike a better bargain? Not really.

As most of the jewellery sold was unbranded in the past, it gave customers some leeway to bargain on costs and pricing. But now, with more people, especially the entry level and first time buyers, opting to purchase branded jewellery, there is little room to negotiate.

“Today’s buyers are very well informed,” says Mr Jithendra Vummudi, Partner, VBJ. “Unlike a few years back where people bought jewellery that found a place in their bank lockers, people of today buy jewellery that can be used more frequently.”.

In other words, customers make their purchase decision based on how exclusive, elegant and wearable a piece of jewellery is.

“People are shifting from traditional designs to modern designs. So this new pattern is transforming from gold plus making charges pricing to MRP based product pricing,” says Mr Mehul Choksi, Chairman & Managing Director, Gitanjali.

Old for new

With rising gold prices, exchanging your old jewellery for new is also an option. Jewellery stores, especially in the unbranded segment, are seeing an increasing trend in exchange sales. “About 50 per cent of our sales come from customers who want to exchange their jewellery for those with new designs and patterns. For example, lightweight patterns are the flavour of today. So people are trading off their old and heavy pieces for lightweight models,” says Mr Vummudi.

No doubt, Indian jewellery buyers have a fondness for the yellow metal. But with the price differential between gold and some metals such as platinum thinning down and silver jewellery gaining limelight, why not try out newer options?

“While there is no major shift in preferences of customers towards silver, in the urban areas there has been a shift towards platinum as there has been a price correction. Platinum is now priced just 30-40 per cent higher than gold, so those in urban areas are shifting to this metal,” says Mr Vijay Jain, CEO ORRA Diamonds.

“Over the last five years, there has been a steady increase in demand for platinum jewellery in India. However, it is wrong to tag the entire increase to shift in preference to alternate forms of jewellery. After all, gold has been around for centuries in India,” said Ms Vaishali Banerjee, Manager, of Platinum Guild of India.

“But younger people are willing to experiment. So jewellery within the affordable range of Rs 75,000 to Rs 1,25,00 are really sought after in platinum.”

Rings, pendants and chains are the most favoured patterns in platinum.

The market for costume or artificial jewellery is also on an upward trend, the manager of a reputed artificial jewellery brand in Chennai pointed out.

People who are not particular about buying gold jewellery are turning to the costume jewellery, so that they can keep their wardrobe updated. This market primarily caters to those who are fashion conscious, but are unwilling to pay fancy money for gold jewellery. Please note, artificial jewellery bear zero resale value.

Suggestions

Unless the gold jewellery you are buying is exclusive and special, an unbranded store may offer you some cushion to bargain on the price, mainly on the making and wastage charges.

Though platinum is still at a premium to gold, the price differential between the two metals is steadily narrowing. So maybe you can also try experimenting with platinum jewellery. The money you are willing to shell out for 10 grams of gold can fetch you 7-8 grams of platinum.

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