KOCHI: Gold has raced past the Rs91,000 mark per sovereign in India, with international prices now over $4,000 an ounce – a record-breaking rally driven by global safe-haven demand, geopolitical tensions, and falling real yields.
For jewellers, as said by a leading North Kerala-based jeweller, gold itself isn’t the profit centre. Most of their margins come not from gold price appreciation but from making charges – the craftsmanship fees attached to jewellery, which account for up to 90 per cent of their real profit.
True, when gold prices go up, jewellers may see their stock value rise on paper, but they can’t always turn that into real profit every time prices increase.
So while buyers fixate on price charts, jewellers are focused on protecting their thin margins using a mix of practical, old-school tools to hedge against volatility – not to gain from it.
In fact, rising prices often complicate operations by dampening demand and increasing inventory risk.
A price rally of this scale and speed may look profitable from the outside, but for jewellers, it’s often a test of inventory discipline and risk management.
Not all that glitters is gain
“Rising prices are not always good news for us,” said a senior executive at a large Kerala-based jewellery chain. “Customer demand becomes more cautious, and any delay in inventory planning can erode margins.”
The challenge is not just demand compression – it’s also price risk. If gold prices move sharply between order booking and procurement, jewellers could end up selling at a loss. Which is why most serious players rely on hedging— but not necessarily the kind taught in finance textbooks.
So, how do jewellers actually hedge in India?
India’s gold market has long relied on practical, operational risk management tools. The financial controller of a prominent jewellery group shared that many of the textbook instruments – like options- are not easily accessible in India.
“Options aren’t widely available for physical gold hedging here – and even if they were, the premiums are just too expensive to justify for most jewellers,” he said.
Instead, jewellers rely on:
Gold Metal Loans (GMLs):
Jewellers borrow gold (not cash) from banks and repay in gold, not rupees. This protects them from market volatility during manufacturing and stocking cycles.
Natural hedging via same-day replenishment:
Whatever gold is sold during the day is replenished by evening. This ensures that net exposure remains minimal, and the firm isn’t sitting on unhedged price risk overnight.
Forward contracts:
Some retailers enter fixed-rate agreements with suppliers for future delivery, particularly when they’ve taken large advance orders. But these contracts can hurt if prices fall – locking them into higher-cost purchases.
The double-edged sword of forward hedging
Unlike options, forward contracts are binding. So if a jeweller agrees to buy gold at Rs6,500 per gram in a forward deal, but the market later drops to Rs6,200, they still have to pay the higher rate. That’s why hedging protects you in a rising market – but can cost you in a falling one.
As the financial controller noted, “It’s like insurance – you’re happy you had it when prices rise, but when they fall, you end up paying a premium without a payout.”
Winners and watchers
Large, well-capitalised chains – with faster inventory turnover and structured access to bank lines – are able to weather price volatility better. But smaller jewellers, who operate on tighter margins and can’t access metal loans easily, often take more risk by choice or necessity.
Some have even paused large orders, hoping prices cool before the wedding season peaks.
