Jewellery company stocks were rattled by the fear of a possible drop in demand due to sharp rise in gold prices during the upcoming festival.

PC Jewellers dropped five per cent to ₹25, while Thangamayil Jewellery and TBZ were down two per cent each to ₹1,024 and ₹64 on Monday. Titan and Kalyan Jewellers India slipped 0.21 per cent and 0.71 per cent to ₹2,461 and ₹119.

The rise in gold prices is expected to hit domestic jewellery demand amid large-scale job losses in the IT and allied sectors, possibly resulting in an economic slowdown.

Colin Shah, Managing Director, Kama Jewelry, said gold prices hitting a fresh high is a sign of slower economic growth and lower interest rates with ample liquidity to help the system steer of the current situation.

The onset of the festive season starting with Gudi Padva (new year in Maharashtra) will support demand at the retail level. Gold is expected to trade in the range of ₹61,000-62,000 per 10 gm, he said.

Banking crisis

Navneet Damani, Senior Vice-President (Commodity Research), Motilal Oswal Financial Services, said the crisis in the US has put gold prices on track for its biggest weekly rise in three years, while bets solidified for a less aggressive US Fed rate hike in its fight against inflation.

The collapse of Silicon Valley Bank in the US has highlighted banks’ vulnerabilities to sharply higher rates, while a rout in Credit Suisse shares has added to the market turmoil.

While the European Central Bank announced a 50-basis point (bp) rate hike last week, all eyes are now on US Fed’s policy meeting which is expected to raise rates by 25 bps at the scheduled later this week.

Safe-haven buying

However, the probability for a pause is increasing sharply supporting the move in safe-haven assets.

Saumil Gandhi, Senior Analyst - Commodities, HDFC Securities, said despite the rescue deal for Credit Suisse and a concerted effort by central banks, market confidence could not be restored as safe-haven buying continued to support yellow metals.

“Gold ETF holdings last week have reversed early pattern of outflows and have now posted two large back-to-back daily inflows,” he said.