Gold Prices Soar, But Jewellery Stocks Tumble: Understanding the Paradox

Gold has witnessed a remarkable rally this year, surging over 70%—its best performance in nearly four and a half decades. However, for jewellery companies, the story has been quite the opposite. Among India’s top 10 jewellery firms by market capitalization, eight have seen their stock prices decline, with only Titan and Thangamayil Jewellery delivering positive returns.

Titan’s shares rose by 17%, while Thangamayil Jewellery surged 72%. In contrast, other major players have faced steep declines, with losses reaching up to 44%. PC Jeweller’s stock suffered the most, down 44% over the year and trading close to its 52-week low. Senco Gold fell 43.5%, Kalyan Jewellers dropped 35%, and Sky Gold & Diamonds declined 38%. Newly listed PN Gadgil saw a 15% drop, Bluestone Jewellery fell 1%, and Motisons Jewellers slumped 45%.

Rising Gold Costs Squeeze Profits
Experts point out several reasons for the decline in jewellery stocks despite soaring gold prices. The sharp increase in gold costs has strained profit margins, as higher raw material costs and working capital requirements impact earnings. For jewellers, gold is an essential input, and rising prices often result in reduced sales volumes.

Consumers are delaying purchases or opting for lighter jewellery, lowering sales volumes and revenue. Liquidity constraints and rising interest rates have further pressured highly leveraged companies. A shift in buying patterns is also evident—traditional buyers of 22-carat gold are increasingly opting for 18-carat or even 14-carat jewellery for smaller gifts.

Impact of a Weakening Rupee
The depreciation of the Indian rupee has added to the challenge. As the rupee weakens, gold becomes even costlier for Indian buyers, complicating inventory planning for jewellers. Recently, the rupee crossed the ₹91 mark against the US dollar for the first time.

Despite these challenges, India’s organised jewellery market remains robust, valued at around ₹1,752 billion in 2023, with projections estimating growth to ₹5,079 billion by 2029.