How Jewelers Hedge Their Gold Exposure

India’s jewelry industry handles hundreds of tonnes of gold every year. With gold currently at ₹10,075/gm (24K) and ₹9,235/gm (22K), even a ₹100 swing in price can mean millions in margin loss. So how do jewelers protect themselves against price fluctuat

How Jewelers Hedge Their Gold Exposure

India’s jewelry industry handles hundreds of tonnes of gold every year.
With gold currently at ₹10,075/gm (24K) and ₹9,235/gm (22K), even a ₹100 swing in price can mean millions in margin loss.

So how do jewelers protect themselves against price fluctuations?

The answer: hedging—a mix of financial tools, supplier arrangements, and operational discipline.

🎯 The Problem Jewelers Face

Gold is volatile. Prices can shift ₹50–₹200 per day.
Jewelry making, marketing, and sales take 10–30 days, and during this time, price risk is huge.

Without hedging, a jeweler could:

• Buy gold at ₹9,500/gm

• Sell after 2 weeks when it drops to ₹9,300/gm
  ➡️ That’s a ₹200/gm loss, which wipes out their entire profit margin

🔄 How Jewelers Hedge Gold Exposure

✅ 1. Gold Metal Loans (GML) – Borrow Gold Instead of Buying

• Jewelers borrow physical gold from nominated banks

• Pay small interest in rupees (~2–4% p.a.)

• Repay the same weight of gold, not rupee value

🔹 Hedge Benefit: Price movement doesn’t matter—you’re repaying gold, not its fluctuating rupee value.

This is widely used by major chains like Titan (Tanishq) and Kalyan Jewellers.

✅ 2. Futures Contracts on MCX

Jewelers use commodity futures to lock in today’s prices for future sales.

Example:

• Holding 10 kg inventory → Sell 10 MCX gold futures contracts

• If prices fall → Inventory loses value, but futures position gains

• If prices rise → Inventory gains, but futures contract loses

🔹 Net result: Jeweler remains price-neutral.

✅ 3. Forward Contracts with Bullion Suppliers

Instead of going to exchanges, many jewelers simply:

• Lock a fixed price with bullion dealers for future delivery

• Useful during high-demand periods (Diwali, wedding seasons)

🔹 It’s like “price booking” with a supplier—removes uncertainty.

✅ 4. Using Gold Options (Advanced Players)

Large corporate jewelers and exporters use put options to protect downside.

• Buy a put option (right to sell at a fixed price)

• If price drops → Option increases in value

• If price rises → Keep the profit from actual gold sale

🔹 This allows flexible protection without giving up upside.

✅ 5. Smart Inventory Turnover + Pricing Systems

• Reduce holding periods (7–10 days vs. 30+ days)

• Link showroom pricing to real-time spot prices

• Adjust making charges dynamically based on market

🔹 These “operational hedges” keep margin stable—even without financial instruments.

📊 Hedging Summary Table

🧠 Why It Matters for Investors

Companies like Titan, Rajesh Exports, and Thangamayil disclose hedging strategies in annual reports.

Strong hedging = Consistent margins
Poor hedging = Earnings volatility

As an investor, watch:

• % of inventory hedged

• Use of GML and derivatives

• Average gold holding duration

📦 Final Thought

“Gold may glitter, but margins are thin—and only those who hedge, survive.”

India’s jewelers don’t just shine in design;
They quietly run some of the most sophisticated hedging operations in the retail world.

Understanding this gives you an edge as both an investor and a consumer.