Gold Prices Soar, Boosting Sales Volume for Indian Jewellery Retailers

By BNO - Mumbai Branch

The price of gold in India has consistently risen over several months, reaching new peaks due to factors such as escalating US-China trade disputes, a declining American currency, and an increasing preference among investors for secure investments. During the latter part of April, local gold rates surpassed the crucial threshold of ₹100,000 ($1,174) per 10 grams. India stands out as one of the leading global consumers of gold.

Starting from December 2024, the price of gold has increased by INR20,850 for every 10 grams, representing an increase exceeding 26%. A significant portion of this surge occurred after early April when the U.S. government announced new tariff measures, leading to heightened global market volatility, as reported. Moneycontrol .

Even though Indian prices have decreased somewhat because China might consider excluding certain American goods from their 125% duties, they continue to stay high. U.S. President Donald Trump mentioned that negotiations between his country and China are still happening; however, Beijing refutes these claims, stating no such discussions have occurred.

The significant surge in gold prices could potentially reduce the quantity of gold sold. A study from Crisil Ratings indicates that as gold rates reach unprecedented peaks, organized retail jewelers might experience an 9-11% decline in their gold jewelry sales for the fiscal year 2026. Nonetheless, due to expected substantial increases in earnings per unit, total revenues are anticipated to grow by approximately 13-15%.

This comes after four successive years of over 20% yearly increase in revenue, during which the sector grew by 2.5 times from fiscal year 2021. Nonetheless, growth in sales volumes has remained modest because customers have bought lesser amounts due to financial limitations brought about by increased pricing, as stated in the Crisil report.

To increase their sales figures, retailers are turning more frequently towards promotional offers and discounted pricing, particularly within Tier 2 and 3 urban centers. Despite these strategies elevating expenses, the anticipated rise in jewelry selling prices above both acquisition cost and manufacturing fees could elevate operational profit margins by approximately 30-40 basis points compared to the previous year. This improvement would be further supported by positive movements in stock levels.

Increased gold prices are anticipated to lead to higher working capital borrowing requirements as businesses stock up their inventories for both current and upcoming outlets. Nonetheless, this elevated leveraging is projected to stay within controllable limits with robust debt protection measures remaining intact. This scenario supports the financial standing of organized retail establishments according to Crisil Ratings observations.

A study conducted by Crisil Ratings on 60 gold jewelry retailers, which represent approximately one-third of the organized sector's income, highlights these developments. During fiscal year 2025, established retailers experienced a 4-5% drop in sales volume due to gold prices increasing almost 25% compared to the previous year. By mid-April 2025, gold prices had risen to be roughly 20% above the yearly average for fiscal 2025.

As stated in the Crisil report, raising prices by just 4-5% from their present values could result in average costs climbing by 22-24% compared to last year’s figures for fiscal 2026.

Himank Sharma, who leads Crisil Ratings, mentioned that the price hike took place right before the onset of the festive and wedding seasons in early April 2025, thereby restraining its instant effect on consumer purchasing. Nevertheless, with buyers' financial limits staying steady, there is anticipation for a decrease in both carats and grams used, affecting sales volume. Additionally, Sharma noted that demand continues to receive some backing from the previous year's reductions in import duties.

Such structural changes like the implementation of the Goods and Services Tax along with obligatory hallmarking enforced by the Bureau of Indian Standards keep steering consumers toward established entities, maintaining the pace of income expansion. Increased pricing could potentially lead to yet another year of double-digit revenue advancement.

Rising gold prices are anticipated to bring about dual effects. Jewelry sold above the initial purchasing price could lead to an enhancement in inventory profits ranging from 20 to 30 basis points, which would help move operational profit margins nearer to their seven-year average mark of around 7.8%-8%, projected for fiscal year 2026. Concurrently, debts may rise due to increased expenses associated with restocking inventories and opening additional outlets. Nonetheless, bolstered income statements along with enhanced profitability should facilitate better cash flows, supporting growth strategies.

Even with an increase in debt levels, the financial framework of structured jewelry stores is anticipated to maintain robustness. Increased sales and better profit margins will bolster debt indicators, with average interest coverage forecasted to remain solid at more than sixfold for the fiscal year 2026, as per Gaurav Arora, who holds the position of associate director at Crisil Ratings.

The document stated that significant fluctuations in gold prices, alterations in governmental rules or tariffs, along with shifts in customer attitudes, should be key aspects to monitor closely.

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