Gold Bullion is Safer than Speculative Gold Jewelry Stocks

The explosive jump in the price of gold this year has triggered a global rush into all manner of stocks that benefit from gold. This includes not only gold miners, which clearly depend upon the value of gold for profitability, but also sellers of gold jewelry. 

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Publicly traded jewelry retailers in India, the world’s second largest for gold jewelry, have seen their stocks jump this summer. In response, Kalyan Jewellers India, which has more than 100 stores across India and another 30 in the Middle East, is planning to come to market with the largest initial public offering of an Indian jeweler, hoping to capitalize on the gold boom by raising more than $230 million. 

In Malaysia, shares of jewelers have more than doubled since late July, including Niche Capital Emas Holding, Tomei Consolidated, and Ph Kong Holdings. 

But the speculation may be overdone. Because of the coronavirus pandemic, sales of gold jewelry are suffering this year. Lockdowns forced many retailers to close their doors for months, while job losses and furloughs have reduced household income that could be spent on luxuries such as gold jewelry. 

“These gold stocks are up due to a lot of speculative buying by retail investors,” Danny Wong, chief executive officer at Malaysia’s Areca Capital told Bloomberg News. “One should buy physical gold not gold stocks if the view is that the yellow metal’s price will rise,” said Wong. 

Some professional investors are trimming their exposure to gold stocks. Delbrook Capital Advisors Inc., for example, a gold-oriented Canadian hedge fund, is selling gold stocks due to high valuations, according to Bloomberg.

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