JEWELLERY STOCKS SHINE - BEDAZZLED?

By Ruma Dubey

Diwali has come and gone. But looks like the sparkle has come to the jewellery stocks only now.  And today, the shine has become bright for some jewellery stocks hitting new highs  - Gitanjali Gems, Thangamayil Jewellery, Tribhovandas Bhimji, Vaibhav Gems; all these have literally blinded the Street with their sparkle today. Shree Ganesh Jewellery has not hit a new high but it is up almost 5%.  Ditto for Shrenuj Co, Renaissance Jewellery and C Mahendra Exports.

This new found love for pure jewellery is not purely on the back of robust Diwali and Dhanteras sales. In fact Dhanteras, gold jewellery sales rose 30%, both in value as well as volume terms and 50% growth in sales of diamond jewellery. And now the wedding season has taken off; the second half of the calendar year is usually the peak time when jewellery sales pick up. In fact, World Gold Council (WGC), which is a not-for-profit, market development organisation for the gold industry, for the first time in the world, has taken an initiative to launch its own jewellery brand, Azva and it is betting big on bridal jewellery.  And WGC went with bridal category as that buying in India accounts for about 50% of the entire gold jewellery market.

The All India Gems & Jewellery Trade Federation is also bullish and stated that it expects overseas purchase of gold or imports to rise over 27% (YoY) in current quarter.  There are 22% higher wedding dates in Dec 2012 and this means demand is expected to boom.

This apart, the outlook ahead, as stated by many, is extremely bullish, not for just gold but for gold jewellery too. WGC’s Marcus Grubb has stated that gold is once again re-establishing itself as part of the fabric of the financial system. He has said that in the medium term, the quantitative easing initiatives in the West and the continuing growth story in the East, particularly in India and China, coupled with the seasonally strong quarter coming up in Asia, are excellent indicators for further growth in the gold market.

And in terms of outlook for gold, there is once again a bullish trend emerging as many expect that gold is poised to continue rising in 2013 as central bank stimulus spurs investors to accumulate more gold. According to a median of 16 analyst estimates compiled by Bloomberg, gold is expected to rise every quarter next year and average $1,925 an ounce in the final three months, or 12% more than the present rate. Many analysts are saying that central banks of countries plus High Networth Investors, will invest more in gold, as a hedge against the follies of the various politicians across the globe.

Central banks are big gold buyers this year. They bought 254 tons in the first half of 2012, which is 34% higher than last year. They had targeted to buy another 220 tons in current second half, taking the total for 2012 to 493 tons compared to 457 tons of 2011. Apart from the BRIC nations, Central banks of Russia, South Korea, Kazakhstan, Turkey, Ukraine and the Kyrgyz Republic are big buyers today. The central banks of EU stopped selling gold since 2009 and today, it is a net buyer. And why are these central banks buying gold? Because, they have now realized, post the 2008 collapse that it is risky to hedge all money to the US dollar and to spread the risk, have increased their gold reserves.

So what do people like me and you do? Well, if there is no wedding in the family and you do not need to buy gold, best to stay away from this current surge. Traders do not expect gold prices to scale very high and say that it may not cross the Rs.32,500 levels.

Best to think twice before you head out to buy gold or gold stocks at current high rates.