Dubai: Gold prices continue to climb and are approaching a point where they might go beyond consumers' reach. Or are they reaching a point where diamonds appear cheaper? Is this good for the gold dealers?
What do gold dealers say about the situation?
Rolf W. Schneebeli, the newly appointed Chief Executive of the Joyalukkas Group, told Gulf News he expected the price of gold to stay high or rise even higher.
"This certainly helps the business, besides the fact that gold is finally back in the spotlight and gets much more publicity than before," Schneebeli said.
Schneebeli joined Joyalukkas as CEO in April to enhance its management of its rapidly growing network of branches in India, Europe and the Middle East.
In an interview, he expressed his views on the current market situation.
GULF NEWS: How is the gold market, business-wise? Is the price of gold going to rise further?
ROLF W. SCHNEEBELI: The gold and jewellery business is an interesting business, despite an ever-increasing degree of competition among jewellers, mainly on the price level.
In addition, we have had a lot of volatility in the gold price which has an immediate impact on gold sales as our clients are well aware of the price movements and have set their mind on bargain purchases.
But the consensus among jewellery clients now is that the price of gold will stay high or might go higher.
This certainly helps the business, besides the fact that gold is finally back in the spotlight and gets much more publicity than before.
Why is the price of gold moving upwards?
Typically the gold price moves on expectations of future inflation on one side and on the fear of people losing everything due to a major crisis and banks or whole countries failing to repay their debts.
Currently we have a combination of both factors in the market.
Since the fall of Lehman Brothers we now even have conservative investors in the West, including pension funds and other institutional investors seeking refuge in gold and as a result there is not enough gold available and the price goes up.
A price forecast is of course very tricky and the wildest opinions and predictions are going around.
However, a level of $2,000 per ounce within three years, as often heard, is certainly a good guess.
Is it going to come down to the level of, say, $400-$500 in future?
This looks very unlikely as the increased money supply will undoubtedly translate into higher inflation.
The central banks have just no possibility to take out the huge liquidity they injected to prevent countries from falling into depression without killing the slow economic recovery.
It's not a question of if, it's only a question of when we will see higher inflation. In such an environment the price trend will be up.
How much does the gold price rally have to do with the rise of the US dollar?
It is a strange phenomenon which has its roots in the investors' behaviour.
The US dollar is as sick as the euro, maybe even more so. But the investors are in the fear box and sell every investment they can liquidate for dollars, as they know it well and think they can still buy something for it, at least in the short term.
One could describe it as "better the devil I know", but this is dangerous for investors.
How do you see gold demand moving in the short term?
On the physical level we see surprisingly strong resilience in demand despite the price.
Whenever we have a drop in the price we have soaring sales which highlight the buyers' appetite for gold.
At the investment level the price is not that important, and when investors see future potential, they buy despite the recent price development and regardless of whether the price is at an all-time high. One can easily say that everyone, from investors to speculators and jewellery buyers, are already used to a price of about $1,200 per ounce and hence one can expect good sales in all market segments.
If gold prices rise further, do you think diamond sales will go up as people might find diamonds more attractive price-wise?
This is indeed an interesting development.
Clients realise that diamonds have different investment characteristics from gold and use them as a substitute for gold.
This is not only true for diamonds but also for other precious stones and even other materials such as silver.
This trend is easily visible in the gold souq where more and more stones are on display. Also at Joyalukkas we follow this trend and have adjusted our product offering accordingly.
How is Joyalukkas doing in terms of business?
In the Gulf, Joyalukkas closed the most recent financial year with an increase in profits of 10 per cent.
This result has been achieved despite lower sales, mostly in the gold area, by a change in product mix and quickly implemented cost reductions.
In India our operation reached sales of more than Rs18 billion (Dh1.5 billion), helped by the quick rebound in econ-omic activity and the expansion of our distribution network.
We are planning for another year of growth in 2010 and are confident of reaching our aggressive targets.
How many outlets do you have? How many people are working with Joyalukkas Group?
Joyalukkas is certainly one of the largest gold and jewellery chains in the region. In the Gulf we currently have 57 outlets and in India we have 20 shops of a larger average size.
One of these shops is (probably) the largest individual jewellery shop with 67,000 square feet in Chennai.
This is reflected in the total workforce which stands currently at about 4,000 — 2,500 in India and 1,500 in the Gulf.
Are you expanding business? If so, where?
Within the next few months we will open shops in Saudi Arabia, namely in Al Khobar, in Riyadh and in Jeddah. In addition our operation in India will be opening a very big shop in Bangalore in July. This will be followed by about 10 additional shops in Tamil Nadu and Karnataka within another 12 months.
Profile: Global leader in gold
Rolf W. Schneebeli is an internationally experienced economist with a wealth of experience in the areas of banking, investment, precious metals, retailing and marketing.
He graduated from the University of Zurich, Switzerland, with a master's degree (lic.oec.publ.) in Economics, Business Administration, Banking and Law. He joined Citibank and held various positions, mainly in the areas of Investment Management and Private Banking in Switzerland and Hong Kong. Among other responsibilities he headed the Middle East Wealth Management Department in Zurich, was the global market manager for Citibank's private bank for a specific region and introduced the "modern portfolio theory" approach in Citibank's Hong Kong operations. His investment approach has been dramatically shaped by experiencing "his first stock market crash" in 1987, which put an end to the massive bull run of the ‘80s.
After another assignment with a private bank in Switzerland where he expanded his knowledge to include Latin American clients and being responsible for the gold funds of the bank, he joined the World Gold Council to develop their regional head office (Middle East and Indian Subcontinent) in Dubai. He was the founder of the Gold and Jewellery Group in Dubai as well as similar organisations around the region.
Together with his team he created the "Dubai, City of Gold" programme, launched the first new coin and medallion in Dubai during the first Shopping Festival, and started a major branding effort in the industry. On the subcontinent he guided his team's effort to get gold on to open general licence and liberalise the gold industry in India. On a personal level he was a founding committee member of the Swiss Business Council in Dubai.
In 2000 he left Dubai to head a Swiss bank in Luxembourg. After some assignments in the private equity and finance area in Switzerland and Europe, he returned to Dubai as adviser to a diversified conglomerate. He has now joined Joyalukkas, a premier gold retailer in the region, as CEO of their operation.
Joyalukkas Group
Joyalukkas Group, a winner of the RetailMe Best Retailer of the Year (Middle East) Award, has 79 jewellery showrooms around the world including the world's biggest jewellery showroom, in Chennai, India.
Over the past two decades Joyalukkas has become a household name among the expatriate population in the GCC and has also firmly established itself in India. Other than being renowned as the world's favourite jeweller, the group has also diversified into fashion, information technology, media, currency exchange and gold trading.
Continuing a tradition of trust started in Kerala in 1956, Joyalukkas opened the first jewellery showroom in the Gulf in Abu Dhabi in 1987. The number of outlets has steadily increased to 79 across the GCC, India and London. By 2011 Joyalukkas Jewellery hopes to have 100 showrooms around the world.
After setting up the world's biggest showroom in Chennai, Joyalukkas opened its new showroom in Turner Road, Mumbai.
The brand today enjoys the trust of more than 10 million customers and employs a highly committed and satisfied team of more than 3,000 people.
Gold: Shining bright
The World Gold Council (WGC) said it expects demand for gold to remain strong during 2010, driven by a growing demand for jewellery in China and India as well as an increase in European and US investment.
The demand was linked to continued economic instability, sovereign risk and the threat of a "double dip" recession, the council said.
According to WGC's Gold Demand Trends report published last week, demand in India and China will continue to grow, driven by demand for jewellery despite high local currency gold prices.
In the first quarter of 2010, India was the strongest performing market as consumer demand surged 698 per cent to 193.5 tonnes.
In China, demand proved resilient; it increased 11 per cent in the first quarter of 2010 to 105.2 tonnes.
The strong demand was despite high local gold prices, which on May 12 in India increased to Rs56,032 an ounce, the highest level for the year.
At the same time in China prices reached an all-time high of 8,480 yuan.
This suggested "consumers in India and China are becoming accustomed to higher gold prices", the council said in its report.
Concerns about Greece's public finances, and debt contagion fears in Europe, have led to strong buying in particular for gold coins, bars and gold exchange traded funds (ETFs) during May, which may show up in the second quarter figures for 2010.
