Rising Gold Leasing Rates Squeeze Jewellers’ Margins in India

Indian jewellers are grappling with rising gold leasing rates as global banks shift their focus to securing gold for the U.S., creating a potential supply crunch. This development, triggered by tariff uncertainties under the Trump administration, has placed additional pressure on jewellers' margins, especially as gold prices hit record highs. On the Multi Commodity Exchange (MCX), gold reached an all-time high of ₹86,360 per 10 grams last week, exacerbating concerns over costs for jewellers who rely on leased gold instead of outright purchases. The rising cost of leasing gold, which has doubled within a month, mirrors global trends, where tightening supply has driven rates up.

Gold leasing rates, the interest charged when jewellers borrow gold from banks or bullion traders instead of buying it, have surged due to dwindling domestic supply. India, heavily dependent on gold imports, sources gold through banks that acquire it from international suppliers. However, many of these banks have redirected gold reserves to the U.S., leading to near-empty vaults in key Indian cities. According to a Mumbai-based dealer, banks are reluctant to bring gold back to India due to pricing discounts. Meanwhile, COMEX gold inventories in New York surged from 17.5 million troy ounces in November to 33.38 million troy ounces in early February, as traders hoard supplies in anticipation of potential trade disruptions.

The impact of rising leasing costs is already evident in earnings reports of leading jewellers. Titan Company reported a 2.4% year-on-year decline in EBIT for its jewellery division in the October-December quarter, amounting to ₹1,398 crore, citing inventory losses as a contributing factor. Senco Gold also reported a steep 69% drop in profit after tax (PAT), affected by higher costs for expansion, volatility in gold prices, and increased customs duties. With gold leasing rates previously ranging from 2.5% to 3%, industry executives now anticipate a further rise to 6-7% in the coming months, significantly increasing operating costs.

Senco Gold's Managing Director, Suvankar Sen, noted in a post-earnings call that rising lease rates would add an estimated ₹7-8 crore in funding costs over the next two months. To counterbalance this, jewellers may need to adjust making charges or adopt a higher charge ratio to maintain profitability. Similarly, Titan’s Associate Vice President - Finance, Vijay Govindarajan, acknowledged that the company has observed an uptick in leasing rates but remains cautious about predicting long-term effects. He emphasized that the next couple of months would be crucial in assessing the supply-demand situation and how banks respond to it.

In contrast, Kerala-based Kalyan Jewellers has indicated that leasing rates have remained stable for their operations, though Executive Director Ramesh Kalyanaraman refrained from speculating on potential customer price adjustments. He stated that at present, increased leasing costs cannot be passed on to consumers.

To Summarize

The current situation poses a significant challenge for Indian jewellers, who are already navigating weakening demand amid record-high gold prices. As global markets continue to respond to trade uncertainties and supply shifts, jewellers must carefully manage pricing strategies and cost structures to sustain profitability. With leasing rates expected to stay elevated in the near term, companies will have to balance higher input costs without directly impacting consumer demand. The trajectory of gold prices and interest rates in the coming months will play a crucial role in determining how the industry adapts to these financial pressures.