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BUYERS of gold jewellery believe that they can get better bargains at the wholesale bullion markets, which is usually in the crowded by lanes of cities like in the walled city of Delhi or similar such places. However, the scenario in places flooded with wholesale jewellers and those exclusively into bullion trade is quite different. While customers may be able find to their way to these small shops armed with a reference, they are unlikely to get special treatment.
That’s because these jewellers have found another business stream, i.e., the futures market. With direct access to the local MCX / NCDEX, they are able to get the futures rates of gold and silver in the local and international markets.
Thus, in place of the hedging activity, which was initially thought to be the purpose of introducing futures in gold/silver, bullion traders have started treating the same as another avenue of business, apart from selling jewellery and gold.
It is very likely that once the customer orders jewellery of his / her choice and steps out after paying a major part of the value as an advance, such traders in wholesale market get busy in trading in the commodities market for gold / silver. They use the same advance given by the customer and use it as margin. Thus, in falling markets like it is these days, it is very likely that the customer who has ordered jewellery will be forced to wait for a longer period of time before the ordered piece of jewellery is ready for delivery. There is a possibility that his order for jewellery may have been placed late since the wholesale trader would be keen to make the most out of the falling gold prices.
The thumb rule in the jewellery market in most parts of the country is to value the entire order as per the date on which the customer pays a major part of the advance. In this case, the customer would end up finding up that he could have saved more by not paying a major part of value as advance. In effect, it would be the wholesaler, also involved in trading, who would have got better margins out of a retail customer, by going short in gold futures in futures, or by waiting to place the order.
Conversely, given that the customers approach the retail jewellers for placing their orders, it is highly unlikely that they will face a situation like this. This is because the core business of retail jewellers in most cases, is to earn by selling jewellery, and not look for such avenues of business like trading gold / silver futures. There is no denying the fact that the making charges that the customers get could be marginally higher than what they get in the wholesale markets, yet it is very likely they would be assured of prompt delivery in proper time, as promised. Chances of misuse of advances are very unlikely in such cases since the time lag between order placed and delivery narrows down, to well below what the wholesale jeweller may take.
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