Your gold investment is soaring. So why are retailers struggling?
A sharp rally in gold fueled by global uncertainty has created a paradox in the Indian market. While investors have benefited greatly the high prices have hurt gold retailers. Here is why
When the going gets tough, the tough get going. In the world of investments, gold is that tough guy. During the pandemic, the yellow metal surged, and since then, inflation fears, monetary tightening, geopolitical conflicts, and US policy uncertainty have kept its momentum strong.
In constant currency terms, gold has compounded at 17% annually since 2020, and nearly 20% in India due to rupee depreciation—outpacing the Nifty 50’s 14% CAGR.
While some households have grown wealthier, gold retailers have not been as lucky. Even those with limited US exposure, like Kalyan Jewellers, are hit by policy uncertainty abroad as it fuels gold prices. The effect is multipronged. Let us explore this through the lens of Kalyan Jewellers.
Dearer gold tests demand
In India, gold is more than an asset. With strong sentimental value attached to it, gold is tied to weddings and festivals and is considered a financial security by women.
According to the World Gold Council, a quarter of India’s demand for gold comes from households. This fact placed India among the world’s largest gold consumers, but it comes with a crucial catch. Given households’ limited purchasing power, their demand for gold tends to be more sensitive to price.
Gold’s rally picked up significant pace in early 2024. This has resulted in an industry-wide moderation in volume growth, even as revenue growth is supported by rising prices of gold. Topline growth at Kalyan Jewellers has barely kept up with the increase in the price of gold.
Volume growth, estimated as topline growth adjusted for the appreciation in gold price, has moderated from an average of 21% until March 2024 to just about 1% since then.
Volatile prices complicate inventory dynamics
India’s jewellery market spans several regions and styles. While the demand for wedding jewellery dominates, that for daily and fashion wear makes up 40% of the market. Similarly, South alone comprises 40%, while the rest of the country drives the remaining 60% demand. The rural-urban split for jewellery in India stands at 60-40%.
This complicates inventory dynamics for jewellery retailers like Kalyan Jewellers. The design sensibilities vary widely across regions. Consumers in southern India prefer heavy and matte temple designs; colour contrasts appeal to the west; light and delicate designs find demand in the east; and grand, layered designs find takers in the north.
Consumers’ preferences change with time too, with lightweight and personalized jewellery growing in scope. This is to say that retailers need to forecast evolving demand for each region, and maintain inventory accordingly.
Add a dynamically evolving gold price to the mix, and the equation becomes manifold more complex. While the demand for wedding jewellery is relatively resilient, discretionary demand for gifting, fashion, and investment is more sensitive to the price of gold. Rural demand also tends to be more price-elastic.
So, in a volatile price environment, retailers need to maintain inventory agility and shift their stocks towards wedding jewellerywhile also keeping in mind the region-wise preferences for ticket sizes and carats. Finally, there is also the complication of timing—ideally, retailers would like to buy gold when the prices are low and sell jewellery when the price rises. Of course, this is easier said than done.
Gold metal loans cut both ways
Speaking of inventory, gold retailers do not necessarily have to shell out cash to stock up gold. Banks extend special gold metal loans (GML) to jewellery manufacturers— loans in gold, rather than cash. The jeweller uses the borrowed gold to make jewellery, sells it, and repays the GML in cash at the prevailing price of gold.
Why would jewellers go for GMLs? Compared to using cash from its accounts, GMLs are a no-brainer – they free up cash. But that can be achieved with regular loans too. What’s special about GMLs? GMLs not only cut out a step in the process as the jeweller gets gold directly, but they also come at lower interest rates. GMLs are typically of shorter tenures, and the lender has greater control over the collateral in such loans, resulting in higher cost-effectiveness for the jeweller.
Kalyan Jewellers has been increasingly relying on GMLs to stock up on inventory. We have mentioned Kalyan Jewellers in this article as it was forthcoming about the use of GMLs in its annual report.
Its net debt to equity, excluding GML, was -0.02x in the 12 months ended June 2025, while that including GML was 0.5x. Around 54% of its debt as of March 2025 was in GMLs. By FY27, the jeweller aims to avail all of its debt in GMLs alone.
This comes with its own set of risks. GMLs are exposed to price risk on the principal. At maturity, the jewellers must repay the value of the gold at the prevailing price. If gold price has increased in the interim, they must repay more principal than they borrowed.
GMLs are effectively backed by collateral and are therefore exposed to margin calls from the lender. Their shorter tenures also lead to a possible cash-flow burden if the jeweller is not able to mobilize the sales within the short timeframe.
Another point to note is that GMLs make it harder to read the jeweller’s cash-flow statement. If a jeweller avails regular cash loans to purchase inventory, the financing cash inflow from the loan cancels out the operating cash outflow from inventory purchase. But with GMLs, the loan is in gold, not cash. So, there is no financing cash inflow. In effect, the operating cash-outflow appears to have stressed out the jeweller’s cash-flows. But on the ground, that’s not the case.
Silver linings and caveats
Kalyan Jewellers employs automated hedging techniques to protect the business from volatility in gold prices. But even if one sidesteps under-hedging and over-hedging, hedging can be imperfect due to basis risk, limited liquidity, and a mismatch in timing. It may also be exposed to margin-calls and counterparty risks, and can be costly as well. More importantly, hedging does not solve for the problems of demand slowdown and inventory management discussed above.
That said, rising incomes supported by a healthy economy should ensure robust demand over the long term despite short-term fluctuations. A sustained structural shift of consumers towards organized retailers should support demand as well.
While younger consumers have been prioritizing designs, service, accessibility, and ambience over price, quality-assurance from trusted brands have started appealing more to the older consumers as well. At the same time, regulatory measures including mandatory hallmarking and lower import duties have narrowed the price gap between organized and unorganized gold retailers.
As the MD of Kalyan Jewellers articulated in the FY25 annual report, “while rising gold prices presented a natural test of consumer sentiment", the jeweller has “observed a reassuring resilience, driven by cultural affinity, the emotional nature of jewellery purchases, and growing preference for trusted, formalised retail."
For more such analysis, read Profit Pulse
Ananya Roy is the founder of Credibull Capital, a SEBI-registered investment adviser.
Disclosure: The author does not hold shares of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.
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