How to Play Gold in the Upcoming Festive and Wedding Season

Since the peak of mid-July 2024 when gold was trading at around Rs 75,000 per 10 grams, the price of the safe haven metal has corrected close to 10%.

With the festive season upon us, experts suggest the yellow metal will recover its losses.

The recovery has already begun. Prices have been rising continuously for the last few days.

Factors that Affected Gold

The Indian Union Budget is a critical annual event that sets the economic tone for the country.

The latest budget announcements have made a notable impact on various sectors, including the precious metals market.

Gold, in particular, has seen significant price fluctuations influenced by the budget's policies and projections.

Key budget related factors contributing changes in gold prices include:

• Custom Duty Adjustments - The government announced changes in custom duties on gold imports. An increase or decrease in these duties directly affects the landed cost of gold, thereby influencing its retail price.

  For instance, a reduction in customs duty tends to lower gold prices, making it more affordable for consumers and boosting demand.

• Inflation and Economic Growth Projects - Higher inflation expectations often drive investors towards gold as a safe asset, pushing prices up.

  On the other hand, optimistic economic growth forecasts can lead to a shift towards equities and other investments, reducing goals, appeal, and leading to lower prices.

Following the budget announcements, gold prices in India experienced notable volatility. The immediate price reaction was gold falling almost 5% for the next 2 days following the custom duty removal.

Gold prices often react briefly to budget announcements with immediate spikes or drops based on the perceived impact of policies.

For example, an announcement of reduced custom duties may lead to a quick drop in prices as markets anticipate, increased supply and lower costs.

The Key Factor that May Impact Gold Prices

Adding to the impact of budget announcements, the festival and wedding season in India significantly boosts gold demand.

As families prepare for traditional celebrations and weddings, gold purchases typically surge; driven by cultural and economic factors.

The combination of budget impacts and increased seasonal demands creates a dynamic market scenario for gold in India. For instance, reduced duties might lower gold prices encouraging purchases during festival and wedding season, thereby driving up demand.

Gold Related Stocks to Watch Out...

While gold remains a valuable asset for cultural and traditional reasons, gold stocks become a proxy play through which investors can ride the momentum in gold price.

There are also reasons such as potential for higher returns from stocks. Historically stocks have offered greater returns compared to physical gold (with the right selection of stocks).

Investors also benefit from capital, appreciation and dividend, which are not possible with physical gold.

There's also liquidity and ease of transaction in stocks as they are more liquid than physical gold, allowing investors to buy and sell with greater is the particularly be beneficial during volatile market conditions, providing more flexibility.

And last but not least, it provides diversification.

With all this being said, let's look at the stocks that could possibly benefit from the movement in gold prices.

#1 Titan Company

First is of course the Tata group company that manufactures luxury and fashion accessories such as jewellery, watches, and eyewear.

Titan Company commenced operations in 1984 under the name Titan Watches. In 1994, Titan diversified into jewellery with Tanishq and subsequently into eyewear with Titan Eye Plus.

Titan derives 90% of its sales from the jewellery segment with a 7% market share. Watches and wearables contribute 7% of total revenues with the balance coming in from eyecare division.

In its recent quarterly earnings report, Titan reported only marginal growth. The core domestic jewellery business grew 8% year on year (YoY).

The company showed mixed performance across its divisions, facing various challenges. High gold prices had significantly impacted consumer demand.

However, the cut in customs duty has resulted in a decline in gold prices. This will support margins and also give a boost to jewellery demand, just in time for the festive/wedding season.

Thus, the negative sentiment around the stock has lifted to an extent recently. However, the company has its work cut out in the face of increasing competition and changing customer preferences.

#2 PC Jeweller

Next is PC Jeweller, an Indian jewellery firm based in New Delhi.

It started operations in April 2005 with one showroom at Karol Bagh, Delhi. It's a first generation business promoted by two brothers - Padam Chand Gupta and Balram Garg. It presently has 80 stores in 66 cities, across 17 states and union territories.

The stock has been on the rise recently due to the boost in sentiment surrounding jewellery stocks due to the customs duty cut on precious metals.

Earlier this month the company announced a fund raising via 481.3 million (m) fully convertible warrants through private placement basis. Both promoters and non-promotes can participate.

While all this might be good news in the short term, investors should be aware that the company has been making losses for the last three years.

The company has recently reached a one-time agreement with its lenders to settle its outstanding debt of Rs 35 bn. The company has offered Rs 22.5 bn in a mix of cash and equity. The lenders will be taking a 20% haircut in this settlement.

This has boosted short-term sentiment around the stock. However, it remains to be seen how the company returns to profitability and finds its place in an extremely competitive market.

#3 Kalyan Jewellers

Next is Kalyan Jewellers, one of the largest jewellery companies in India. It's run by one of the oldest business families in India with a family legacy of over a century since 1908.

It designs, manufactures, and sells a wide range of gold, studded, and other jewellery products across various price points ranging from jewellery for special occasions, such as weddings, which is its highest-selling product category, to daily-wear jewellery.

Kalyan Jewellers is currently on a store expansion spree, having opened about 60 showrooms in FY24. For 2025, it's planning 55 franchise Kalyan showrooms in India, and around 80 showrooms in total.

The company's is looking at lab-grown diamonds as its next big growth engine. This segment is still at nascent stage in India.

#4 Senco Gold

Last is Senco Gold, a pan-India jewellery retailer. The products are sold under its brand name Senco Gold & Diamonds.

Senco Gold primarily sells gold and diamond jewellery along with jewellery made of silver, platinum, precious and semi-precious stones, and other metals. The company also offers costume jewellery, gold, and silver coins, and utensils made of silver.

With a catalogue of more than 108,000 designs for gold jewellery and more than 46,000 designs for diamond jewellery, the company offers a variety of designs of handcrafted jewellery, most of which are designed and manufactured in-house in collaboration with over 170 skilled local craftsmen in Kolkata and across the country.

The company also manufactures machine-made lightweight jewellery in gold and diamonds and source jewellery from third-party vendors.

The company has over 136 showrooms which have a total area of approximately 409,882 square feet. It includes 70 company-operated showrooms and 61 franchisee showrooms spread across 99 cities and towns over 13 states across India.

Investing in Gold 'the Smart Way'

Investing in a paper form is the most suitable option and a good proxy for gold prices.

The primary advantage which you'll derive by holding gold in non-physical form is that you'll do away with the physical holding of gold. Therefore, you will not incur holding costs.

Some of the options are Gold ETFs.

Gold ETFs are open-ended exchange-traded funds (offered by mutual funds) which tracks the price of gold.

Then there's gold savings funds. This is an open-ended Fund of Fund scheme offered by mutual fund houses investing its corpus into an underlying Gold ETF, which benchmarks its performance against prices of physical gold.

Equitymaster's Take on Gold

Gold has been one of the most stable assets from a volatility perspective during the pandemic and during the subsequent rebound, giving additional credence to its role as a portfolio diversifier.

However, as with any investment, if you plan to invest in gold, it's important to consider the time frame of the investment. Also, study the market to gauge an understanding of how markets are expected to perform.

Gold is not a fool proof investment. Like stocks and bonds, its price fluctuates depending on a multitude of factors in the global economy.

Gold's increased sensitivity to changes in interest rates means any shift in sentiment could result in a short-term headwind.

On the other hand, concerns about inflation and currency debasement could prove to be a tailwind and support gold prices in the months to come.

To know more about gold, check out our article on how to invest in gold here: How to Invest in Gold?

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...