Handling volatile gold prices: A jeweller's perspective

"You guys must be making a killing with the high gold prices" quipped a customer recently. And went on to elaborate that since a jeweller has a huge stock which was bought prior to this price surge, when the gold rate was Rs. 10,000/10 gms. Its a no brainer that with current prices his logic seemed correct. Think for a moment gold bought at 10,000 and sold at 11,500 is certainly a 15% hike in a span of few weeks. Plus there is making charges. Phew!!

He even suggested that we should freeze our prices at say Rs. 10,500 and that would attract a lot more customers. A smile broke on my face on hearing this.

But what would happen if the prices were to fall suddenly because that too happens. Then a jeweller would certainly have to face huge losses?

The volatility of gold prices is largely unpredictable but the jeweller community has found an ingenious way to handle it. Whenever a jeweller makes a sale at say Rs. 11,500 within minutes the same quantity of gold is purchased from the bullion market at around the same prices. which means the jewellers stock of gold is maintained constant. Whether that happens now when the prices are at 11,500 or when the prices were Rs. 10,000, I explained.

Almost immediately came the next question: So how do jewellers who advertise a lower rate than the prevailing rate do it. Simple try spotting the hallmark logo or claim of the jewellery being hallmarked on that advertisement. Chances are it isn't.

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