Stock market investors on Monday gave a thumbs up to gem and jewellery stocks, thanks to the continuous fall in the yellow metal prices overseas. The precious metal sank to over five-year lows in global markets. Gold futures crashed as much as 4.6 per cent in the Asian markets, as China on Friday revised its official gold reserves upwards, marginally.

On the domestic market, gold prices fell below ₹25,000 per 10 grams on Monday, tumbling ₹524 in futures trade in early trades.

Shares of Shree Ganesh Jewellery House, Gitanjali Gems, Tribhovandas Bhimji Zaveri, PC Jeweller, C Mahendra Exports, Rajesh Exports, and Vaibhav Global gained between 1 and 14 per cent. However, Titan Company fell 1.23 per cent to ₹344.9 on the BSE.

Gold ETFs feel the heat

Gold ETFs — exchange-traded funds on gold that follow the price of gold — fell between 0.5 per cent and 4.5 per cent. Kotak Gold ETF was the biggest loser crashing 4.7 per cent. On the other hand, Canara Robeco Gold ETF fell just 0.5 per cent on the NSE.

According to analysts, the fall in gold prices bodes well for jewellery stocks, as the inventory costs for these companies would fall, giving them better leverage in the coming festival season. Besides, the results season began on a good note for the sector. Thangamayil Jewellery reported a net profit of ₹3.63 crore for the quarter ended June on revenues of ₹300.16 crore. This compares with a loss of ₹3.69 crore for the March quarter and a loss of ₹3.98 crore for the June quarter of last fiscal.

Knee-jerk reaction

Amid these developments, some analysts have sounded a word of caution, too. According to Ramesh Chordia, independent analyst, Monday’s rise in jewellery shares is just a knee-jerk reaction, as the metal price fell below the psychological ₹25,000-mark.

It is better to wait for individual companies’ results before venturing into these shares, as some of the firms are sitting on huge debts, he added. “Also, the price of gold will fall further and it will be prudent for investors to buy these stocks once prices stabilise,” he said.

According to an analyst with a Mumbai-based commodity broking house who requested anonymity, the yellow metal price may not recover any time soon, as economic recovery in the US is now on strong footing.