KOCHI: Gold price has nearly doubled in about two years.
For India's largest listed jewellery retailers, however, the spectacular rally has done more than boost consumer interest in the yellow metal. It has also renewed attention on hedging - a largely unseen practice that shapes how professionally managed jewellers finance inventories and protect themselves against sharp movements in bullion prices.
Few companies illustrate that shift better than Kalyan Jewellers.
Having reduced its conventional, non-Gold Metal Loan (non-GML) borrowings from about Rs1,300 crore to Rs300 crore over the past three years, the company now aims to eliminate such debt altogether during the current financial year.
As conventional borrowings disappear, Gold Metal Loans (GMLs) are set to become the company's principal source of funding for gold inventory.
Non-GML debt-free
Explaining the strategy, Managing Director Ramesh Kalyanaraman said the company wanted to become "non-GML debt-free" during the current financial year. Gold Metal Loans, he said, would continue to expand as banks enhanced sanction limits because they were cheaper and also "take care of the hedging."
The comments offer a rare insight into one of the least understood aspects of the jewellery business.
Unlike conventional working-capital loans, Gold Metal Loans enable jewellers to borrow gold instead of cash. The metal is converted into jewellery, sold through the retail network and settled under the terms of the borrowing.
Besides carrying lower financing costs, GMLs also form an important part of the industry's broader strategy to manage exposure to fluctuations in gold prices.
The borrowing shift is expected to lower Kalyan's finance costs as well. The company estimates that eliminating the remaining Rs300 crore of conventional borrowings could reduce annual interest costs by around Rs30 crore, excluding one-off items.
Kalyan repaid about Rs360 crore of non-GML borrowings during FY26 and said the debt reduction programme would continue to be supported by internal accruals and proceeds from the sale of non-core assets.
The strategy comes at a time when gold prices have surged by nearly 110 per cent, inevitably reviving a broader question within the industry: does rigorous hedging, while shielding companies from adverse price movements, also limit the gains available during an exceptional bull market?
'Sales should drive earnings'
Listed jewellery retailers generally seek to ensure that earnings are driven by jewellery sales rather than fluctuations in bullion prices. Treasury policies are therefore designed to reduce commodity-price risk through a combination of funding structures, inventory management and other hedging mechanisms, of which Gold Metal Loans form an important part.
That philosophy differs from the approach some privately owned businesses may choose to adopt. Without the same obligations to public shareholders or board-approved treasury policies, closely held companies may have greater flexibility in deciding how much exposure they retain to movements in gold prices.
For listed companies, however, the priority is usually different. The objective is not to predict where gold prices are headed but to ensure that shareholders are protected if those predictions prove wrong.
Kalyan's decision to make Gold Metal Loans the backbone of its funding strategy underscores that philosophy. In doing so, it has also drawn attention to an often-overlooked question at the heart of the jewellery business: during one of history's strongest gold rallies, what is the true cost—and value—of playing safe?
