Gold prices in India have climbed significantly since early 2024, driven by global instability, inflation concerns, and US policy shifts. While investors have gained, retailers face difficulties as rising prices curb non-essential consumer purchases and slow jewellery sales growth.
Since 2020, gold in constant currency terms has grown at 17% annually, and in India nearly 20% due to rupee depreciation, surpassing the Nifty 50’s 14% CAGR , reported Mint. While investors and some households have benefited, retail jewellers face challenges from rising global gold prices and policy uncertainty
Gold in India is not just an investment; it holds deep cultural and emotional significance for weddings, festivals, and financial security, especially for women. The World Gold Council report, cited by Mint, notes that households make up a quarter of India’s gold demand, making purchases very sensitive to price changes.
India’s jewellery market is diverse across regions and styles. Wedding jewellery drives most demand, while daily and fashion wear account for 40%. Regionally, the South contributes 40% of demand, with the rest of the country covering 60%, and the rural-urban split stands at 60-40%, showing varied consumer preferences.
Fluctuating gold prices make inventory planning difficult for retailers. Buying gold at low prices and selling jewellery at higher rates is ideal, but predicting consumer trends, regional preferences, and timing stock movements is complex, posing ongoing operational challenges for jewellers.
Jewellers are increasingly dependent on gold metal loans (GMLs), borrowing gold rather than cash. By March 2025, about 54% of Kalyan Jewellers' debt came from GMLs. These loans lower interest costs and free cash but carry risks if gold prices fluctuate during the loan period.
Kalyan Jewellers’ net debt-to-equity was -0.02x excluding GMLs and 0.5x including them in June 2025, with 54% of debt from GMLs. By FY27, all debt may be in GMLs. These loans carry price risk: if gold rises, repayment exceeds the borrowed principal, increasing financial exposure.
Gold metal loans (GMLs) are backed by collateral but can trigger margin calls. Short tenures may strain cash flow if inventory isn’t sold quickly. Unlike regular cash loans, GMLs don’t show financing inflow, making operating cash outflows appear stressed even when the business is stable.
Kalyan Jewellers uses automated hedging to manage gold price volatility. However, hedging isn’t foolproof due to timing mismatches, basis risk, liquidity limits, and margin calls. It can be costly and does not resolve slower demand or complex inventory management challenges faced by retailers.
