The Hindu Business Line : As bright as ever

Stepping inside a jewellery store in T. Nagar, one of the most important gold markets in Chennai, on a Sunday afternoon can be revealing. The shop is crowded with nearly all sections full, each and every salesperson engaged with customers buying jewellery ranging from gold collars, necklaces, bangles, earrings to waistbands.

A scene that makes one wonder if the steep hike in gold prices to nearly Rs 12,000 per 10 gram, an increase of nearly 18-20 per cent from August 2007 rates, has paled its dazzle. Traditionally, Indians have bought gold as jewellery, always keeping an eye on its investment value and worth during bad times. So, are people still buying gold at this high rate?

Anitha, 25, who has spent nearly two hours at the jewellery store says, “There is no right or wrong time. I have an engagement coming up soon and buying jewellery cannot wait.”

Vummidi Gautham, Partner, Vummidi Bangaru Murali Jewellers, says, “South Indians love gold. Nothing can stop them from buying it. Even at Rs 2,000 per gram, people will still buy.” His store has not experienced any drop in sales due to the volatility in gold prices. “I might be selling lesser units, but sales figures are the same and profit is unaffected.”

Even a pan-Indian player like Tanishq, which has presence in nearly 73 cities, has been untouched. “The volatility of gold prices has not had much impact on our sales. In fact, the company has been registering healthy sales,” says V. Govindraj, Vice President - Retail and Marketing, Tanishq. The company clocked a growth in sales from Rs 750 crore in 2005-06 to Rs 1,300 crore in 2006-07, and expects Rs 2,000 crore revenue this year. Its biggest market is in the southern region, accounting for nearly 30 per cent of sales.

K. Shivram, Vice President, World Gold Council says, “The Indian consumer is not really worried about the price though they would prefer it to be a bit steady. They believe that it is the best investment avenue as it ensures immediate liquidity unlike, say, real estate.”

However, Chennai-based contemporary jeweller Prince Jewellery has seen a shift in clientele. “Increase in gold prices has bolstered diamond jewellery market by nearly 25 per cent,” says Princeson Jose, Director. “The younger generation prefer trendy diamond and platinum jewellery compared to only gold.”

High resale value

“With the increase in gold price, global consumers tend to postpone their purchase and would rather buy gold when the price graph shows stability. In India, however, due to social and cultural reasons, it is often not possible to postpone gold purchases,” says Govindraj.

And marriages continue to be a compelling factor for gold shopping. He feels that irrespective of the erratic gold prices, no compromises are made on purchase of gold during this season.

The father of 25-year-old Sowmya Nandakumar, who is getting married soon, says, “We have been saving and collecting gold for her wedding, but there are always last-minute purchases. And high prices cannot postpone them. Yes, the prices are soaring today, but they might get higher tomorrow. We have even started collecting for Smriti, our younger daughter, from now itself.”

They have not even considered diamond or other gem-based jewellery. “Gold is the best investment that you can make during a wedding for your daughter. It has high resale value and can help her during tough times,” he adds.

Gautham senses a subtle shift in consumer mindset. “Previously, people used to buy sovereigns. Now they have a fixed budget in absolute terms, say Rs 5-6 lakh.” Agrees Jose, “The budget might be restricted, leading to lesser quantity, but even in this scenario people do buy for marriages.”

Product choice

The increase has not affected product choice either. “Customers might go in for lighter jewellery, that is, less quantity in terms of grams but would not compromise on the choice of item. For instance, customers looking to buy a chain might rather stick to that than go in for a ring,” says Govindraj.

He adds, “Gold is not negotiated over any other metal. The purchase of diamonds or stone-based jewellery purely depends on preference and style.” World Gold Council’s Shivram says, “Steady increase in light jewellery is a consequence of high disposable income and not really gold prices. People are spending more and prefer to flaunt their wealth and attitude.”

Evidently, in spite of all-time highs, the yellow metal has retained its alluring quality. “High awareness of the intrinsic value of gold in India, deep penetration of the category and transparency in operations are a few reasons,” says Govindraj, adding that no other consumer product in India is sold in this fashion.

India is the world’s largest gold consumer, accounting for slightly more than 24 per cent of global demand. This year, import of gold has touched a record high of an estimated 800 tonnes, of which nearly 600 tonnes goes into making jewellery.

Shivram says, “Right from the birth of a child, gold is bought in India and the rise in gold price has reinforced buyers’ confidence in the metal as a ‘safe haven’. When people from rural India have an increase of income, one of the first things they do is put their earnings in gold, because when they are in trouble it comes to their rescue.” Last year gold recorded a 30-33 per cent return on investment, he adds.

Coins and bars

“For people interested in gold for design and quality, the business is untouched,” says Gautham, citing a near 10-12 per cent decrease in the sale of gold coins and bars. Even Tanishq does not see a robust growth in this product segment in the near future.

However, data from the World Gold Council reveals that volume sales of gold coins and bars have increased by 15 per cent (from August 2007 until now). This is attributed to many private and public-sector banks retailing them to cash in on the opportunity.

“Volatility is true of any market. It goes up and down and up. In the short term, people might feel bad if they bought jewellery at a higher price but from a long-term point of view, they will have no regrets,” says Govindraj.

With the dollar weakening, gold prices are likely to go up further, says Shivram. Nearly all the retailers and consumers Life spoke to agree. Gautham reasons, “That is because gold has the highest resale value and can be exchanged at par at market value. One loses nothing by investing in gold.”

A thought echoed in gold-expert Timothy Green’s statement: “The great strength of gold throughout history has not been that you make money by holding it, but rather you don’t lose. That ought to be its best credential.”