Gold Prices Hit New Record High: Why Jewellery Stocks Are Gaining Today

Gold Prices Drive Jewellery Stocks Surge

Jewellery stocks soared in Friday’s trading as gold prices hit new record highs amid global central banks initiating interest rate cuts in response to easing inflation. The US Federal Reserve is also expected to lower its benchmark rates next week, further fueling the rise in gold prices.

• Shares of Tribhovandas Bhimji Zaveri (TBZ), Kalyan Jewellers, Senco Gold, Motisons Jewellers, PC Jeweller, and Thangamayil Jewellery all experienced gains ranging from 4 percent to 18.5%

How Rising Gold Prices Benefit Jewellery Companies

For regional jewellery companies, increasing gold prices can be advantageous. These companies typically leave a larger portion of their gold inventory unhedged, allowing them to directly profit from any rise in gold prices through inventory gains.

In contrast, larger jewellery firms such as Titan and Kalyan Jewellers hedge from 70 percent to 90 percent of their gold. While these companies hedge a significant portion of their gold, the unhedged portion of their inventory also benefits from rising gold prices.

Overall, jewellery stocks have performed well recently, bolstered by several factors: reductions in customs duties on gold and silver announced in the recent Union Budget, rising demand for wedding jewellery, positive brokerage recommendations, and expectations of strong demand during the upcoming festive season.

Gold Touches New All-Time High

Gold prices surged by 2 percent on Thursday after the European Central Bank (ECB) cut rates by 25 basis points, as anticipated. The ECB’s decision reflects growing confidence among policymakers that inflation is easing. This marks the ECB’s second rate cut, following the one in June.

Expectations of a rate cut by the US Federal Reserve have increased. Recent data, including higher initial jobless claims and weaker August payrolls, indicate a cooling labour market. Meanwhile, US producer prices rose slightly more than expected in August due to higher service costs, but overall trends show easing inflation.

Spot gold prices climbed an additional 0.5 percent today, reaching a new record high of $2,570 per ounce. Gold has outperformed all other asset classes in 2024, providing substantial returns while maintaining its physical appeal.

Why Lower Interest Rates Make Gold More Attractive

Gold prices typically react positively to lower interest rates or the expectation of rate cuts by global banks because lower interest rates diminish the returns on interest-bearing assets like bonds and savings accounts. This makes gold, which does not yield interest or dividends, more appealing because the opportunity cost of holding gold decreases.

Gold is traditionally viewed as a store of value that helps preserve purchasing power. Moreover, interest rate cuts often weaken a country’s currency, reducing its value relative to other currencies.

As interest rates fall, investors may seek assets with higher potential returns, like gold, leading to increased investment demand and rising gold prices.

Overall, this activity illustrates why jewellery stocks are buzzing today in response to the dynamic movement in gold prices.