Will gold companies get benefit if gold prices increase?

Daily movements of the gold prices will not have effect on the companies which depend on gold like Titan Jewelers, Kalyan Jewelers. Let’s see why?

See the other side of coin for better understanding, for instance, if the gold prices fall sharply from here, will the jewelry companies get loss? No. If it is the case, they cannot run their business. Companies will follow hedging mechanism to avoid the impact of daily fluctuations.

Hedging is the process of taking counter position in the future segment to avoid loss.  In this context, if Kalyan Jewelers bought 100 Kg of gold for manufacturing new ornaments, it will sell the same amount of future trading contracts in the share market to hedge their investment (Futures and options are the derivatives which are introduced for hedging). So, for every 1 rupee increase in the price, they will get profit in their asset which they bought and at the same time loss in their position which the company shorted.

Then, you may get a doubt, “How do gold companies make money?”  Through making charges, they will make money and there are several other ways, we are not diving into that topic now.