Indian Gold Book:Indian Gold Book - Gold Bars Worldwide

PRICING AND PROFITABILITY
GOLD JEWELLERY
JEWELLERY FABRICATORS
Contracts
Where retailers and wholesalers do not undertake their fabrication in-house, they enter into a contract with one or more
independent fabrication units.
Most fabrication by these units is undertaken on the basis that retailers and wholesalers, and the public if they deal
directly with them, supply the required amount of gold. The prevailing gold price is usually irrelevant to the transaction.
The units normally cover their costs in one of 3 ways. The agreed charges vary according to the category, weight,
complexity and quality of the item, although some fabricators may charge the same (or similar) rate per gramme for all
designs if they specialise in a specific category and style.
In the form of retained gold
Under this system, fabricators return gold jewellery to an agreed weight, caratage and solder content, retaining an agreed
percentage of the fine gold content to cover the wastage and labour charges. Where this occurs, the percentage retained
tends to range between 4 - 10 %.
In the form of retained gold plus labour charges
Under this system, wastage and the labour charges are negotiated separately. For example, wastage might be 4% and the
labour charge Rs 15 per gramme.
In the form of labour charges only
In recent years, many top end retailers and wholesalers now require fabricators to take responsibility for the wastage
factor. Instead, they pay a higher labour charge (inclusive of wastage), normally in rupees per gramme.
This system has grown among top end retailers as a result of the use of cadmium (it evaporates under heat after
fabrication) or high caratage solders, access to more sophisticated assaying procedures and assay centres, the need to
upgrade caratages since hallmarking was first mooted in the late 1990s, and a motivation to reduce their costs.
Under this system, they expect to receive jewellery containing the same amount of fine gold supplied. The higher labour
charge tends to range between Rs 25 - 50 per gramme, but can be more for complicated items.
Indicative fabrication costs to retailers
The schedule below illustrates the relative charges (inclusive of wastage and labour costs) incurred by a top end retailer for
different categories of standard items. It does not imply that these charges are standard. They would vary according to
the complexity of the items.
Item Handmade
Rs per gramme US$ per gramme
Necklace 35 0.70
Bangle 30 0.60
Chain 45 0.90
Earring 45 0.90
Ring 35 0.70
Generally, a top end retailer would expect average fabrication costs to be around 8 - 10% above the value of the prevailing
gold price.
Profitability
Independent fabrication units are generally regarded as low profit enterprises. Most have also seen their incomes and
profits decline for two reasons, apart from the pressure of increasing competition.
Where gold retention is part or the entire source of income, they have been squeezed by a rupee gold price that has been
largely static in recent years.
The trend among top end retailers to pay labour charges only (permitting no wastage) has also reduced a fabrication unit’s
profitability. The labour charge tends not to cover the previous wastage charge in full. The unit is also often obliged to use
additional gold from its own inventory to provide sufficient feedstock to fabricate the required items.
For example, in Kolkata, it is reported that about 5 years ago, the system was typically 6.5% wastage (Rs 30) plus a labour
charge of Rs 6 per gramme. Total: Rs 36 per gramme. Many units are now receiving around Rs 25 - 30.
The income of employed goldsmiths and ancillary workers is generally low. Wages are reported to range between Rs 4,000
- 15,000 (US$ 80 - 300) per month.
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AN INTRODUCTION TO THE INDIAN GOLD MARKET