Struggling jewelry sector agrees to stop selling gold bars and coins until India's trade balance improves...
in India – the world's heaviest gold-buying nation – are being asked to suspend sales of gold bars
and coins by a major trade association.
The All India Gems & Jewellery Trade Federation told journalists Monday that it will ask its 42,000 member companies to stop selling investment gold units until India's trade deficit has stabilized.
While still more popular thanks to wedding gifts and festival purchases, gold jewelry typically sells at much higher mark-ups than bar and coin gold investment
"The curbs may reduce demand by about 20%," said Federation chairman Haresh Soni in New Delhi, calling the move a "proactive step".
The news comes after the Indian government hiked gold import duty to 8% and banned all new bullion imports unless fully cash paid in advance.
India has no domestic gold-mine output. Imports accounted for 87% of total supply in 2012.
The value of gold bullion imports has risen 14-fold in 10 years, according to The Business Standard
. Outflows of capital were greater than inflows by 5.1% of India's gross domestic product last year, says ratings agency ICRA. Gold bar and other bullion imports alone accounted for 2.9% of GDP
"We have requested retailers to stop selling gold bars and coins for temporary period so that imports reduce," says Soni, head of the All India Gems & Jewellery Trade Federation.
Today Mehul Choksi, managing director of Gitanjali Gems – India's largest gold retailer chain – confirmed his company is also suspending sales of investment gold.
"We are going to reduce sale of gold coins and bars," Choksi told journalists. "Instead we will focus on lower carat jewellery and value added products."
Gitanjali is likely sitting on large unsold stockpiles, however, according to analysts. Its shares have lost 36% of their value on the Bombay Stock Exchange in the last two days following concerns that the falling price of gold will leave large retailers with heavy losses on inventory.
"We need to first pay off the existing credit for the gold in our inventory," says Ravi Ramalingam, vice president for investor relations at Gitanjali.
"Only after that will we be able [to start buying again]."
India's gold retailers "have traditionally followed a practice of holding a lot of inventory," says Espirito Santo Securities' analyst Nitin Mathur in Mumbai.
"They benefited when the gold prices were rising [but] prices have corrected so much, the risk is now [that] the gold in their inventory is worth less than what they bought it for."