Gitanjali in race to buy US jewel major Whitehall for about Rs 400 cr

Gitanjali Gems, a leading jewellery retailer, is understood to be in the race to buy the US-based jewellery retail chain Whitehall Jewellers
Holdings, which filed for bankruptcy recently. The deal, if concluded, will be in the range of Rs 350 crore to Rs 400 crore, sources said.

Gitanjali’s bid for Whitehall is part of company’s move to strengthen its foothold in the US—the world’s biggest organised jewellery market. US diamond jewellery sales account for about 50% of the global diamond jewellery sales. Diamond jewellery sales comprise 55% of total jewellery sales in the US.

Gitanjali executive director GK Nair declined to comment specifically on the deal, but he reiterated the company’s strategy of growing through the acquisition route. “We have great interest in the US market and are looking to expand our operation in the US through the M&A route. We have enough cash on the balance sheet, which no other company in the industry in India has. We can leverage our balance sheet for any possible acquisitions,” he said.

In 2006, the Rs 2,600-crore company had acquired US-based Samuels Jewellers, which was one of the first acquisitions by an Indian firm in the global jewellery retail space.

Whitehall, controlled by private equity firm Prentice Capital Management, is the latest retailer to seek court protection from a US bankruptcy court, as the sagging US economy restricts consumers’ discretionary spending. A court filing says that the company wants to sell itself by July 18.

The US player operates 373 retail stores in 39 US states under the Whitehall and Lundstrom brand names, and employs 2,852 people. Many US-based large retailers have experienced significant losses and decreased sales following the general economic downturn there and tightening of the credit markets, among other factors.

Chicago-based Whitehall said it had lost money and suffered significant negative operating cash flow in each of the last three fiscal years. As part of a turnaround effort, the company had restructured some debt and closed 89 underperforming stores since 2005.

Gold futures to test support levels

Gold futures ended sharply lower on Friday as the dollar rebounded and oil futures declined as global recession curbed demand decreasing the precious metal’s allure as a hedge against inflation. The recessionary fears are yet to show any signs of abatement and, therefore, the dollar should be under pressure. Moreover, the monetary easing underway could lead to serious inflationary pressures going forward which increases the metal’s appeal as an inflationary hed ge. However, near-term deflationary concerns will continue to hamper the demand and gold would tend to move closely with dollar, inversely.

Comex December gold futures moved perfectly in line with our expectations. As expected, we saw a rise above $875, but prices could not sustain at those levels leading to a sharp fall subsequently. As the year comes to a close, we can expect a thin market going forward and along with some exaggerated moves on both sides. Very important support is at $809 now and as long as this level remains undisturbed, there are good chances of this bullishness to remain and probe the higher side.

Unexpected fall below $807/09 could trigger weakness and such a fall could take prices lower again towards $750 levels, which we do not favour. We believe that the third wave could have ended at $1,033 and the fourth wave that we have been tracking could still be in formation and not ended as expected in the earlier updates. The RSI is in the neutral zone, indicating that it is neither overbought nor oversold. The averages in MACD are above the zero line of the indicator again, suggesting a possible bullish reversal. Only a cross-over below the zero line of the indicator could signal bearishness. Therefore, expect gold futures to test the support levels.

Supports are at $824, 810 & 789. Resistances are at $845, 854 & 865

Gold’s fate linked to dollar movement

Even 2008 draws to a close, it is becoming increasingly clear that all commodities market participants - traders, investors and others – will remember the year for the extraordinary price performance, gyrations and volatility. Commodity prices - be they of energy, metals or agriculture - not only hit multi-year record highs at one time, but they also plunged to great depths in a matter of weeks, if not days, precipitating a crisis.

Quite contrary to the first two quarters, in the last quarter, producers, consumers, traders and investors faced daunting challenges in the wake of sharply declining demand, rising inventory and collapsing prices.

Speculators exited the market in a hurry, removing a considerable amount of speculative froth that had developed in many commodities during the bull-run.

What started as global slowdown degenerated into a recession, at least in industrial economies such as the US and the Eurozone. Financial and economic conditions have turned grim. Currency fluctuations, especially that of the dollar, impacted market prices.

There is a widespread expectation that notwithstanding continuing recessionary conditions, commodity prices may largely be bottoming out. From the current levels, further downside risk to prices - crude, base metals, agriculture - seems to be limited. The crisis of confidence continues and may stay for some time.

However, when the process of economic recovery begins, hopefully in the third quarter of 2009 as a result of a series of bailout and stimulus packages, investor confidence may return to the market. Until then of course one must reckon with volatility.

There is also the strong possibility that sizeable output cuts that have been made in crude, steel, copper, aluminium and others will store problems for the future and begin to create a supply bottleneck when demand returns.

However, for the time being cash is still king and poor demand outlook remains the top of market concerns.

With the dollar rapidly weakening against the euro last week, gold prices got a boost and decisively moved above $800 an ounce. Physical demand at lower levels amid less volatile conditions generated support.

On Friday, in the London spot market gold PM Fix was at $835.75/oz, down from the previous days $855.25/oz. Silver declined too to $10.61/oz (AM Fix) from $11.29/oz the previous days.

Going forward, the yellow metal will be clearly influenced by the strength or weakness of the greenback. If the dollar should weaken further, it should provide a strong base for the metal to move higher. However, foreign exchange experts are of the opinion that currency movements in the next few weeks may cushion gold’s upside.

Interestingly, as the prices ruled above $800/oz, many investors exited their long positions on the Comex. No wonder, net fund length is near the lows of June 2007.

According to technical analysts, gold’s uptrend is erratic. It may be tough for the metal to breach $880 levels. The market is holding above short-term support of $829. Below $829 would warn of a deeper pullback towards $782, though even in this scenario the choppy uptrend from October lows is likely to remain dominant force. The medium term view is largely neutral within $700-930.
Base metals

After sliding to fresh lows, base metals prices rallied on news that the US government will give an emergency loan of $17 billion to the US car manufacturers. Other wise, it was terrible week for base metals, with the exception of aluminium and zinc which ended the week higher. Lead prices fell by over 16 per cent week-on-week and tin fell by over 10 per cent.

Outlook for the base metals complex over 2-3 quarters into next year is grim with recessionary conditions and lack of demand growth the main theme. Construction sector and automobile sector, two important metals consuming sectors are facing serious downturn in demand. Inventories are rising. Many producers have responded quickly with output cuts.

Copper is the metal with the largest downside potential from current levels. Copper prices are is still above production costs and miners are still making money. So, there could be further cost-related cutbacks, experts assert.

On the other hand, aluminium, nickel and zinc prices have all fallen very close to weighted average production costs, experts point out, adding copper could dip near to this level at $2,100 a tonne.

Notwithstanding short-term weakness, the longer term outlook for base metals appears positive. This is because not only is output being cut, new investments are being put on hold. This will squeeze supplies when demand returns to the market. There will be supply constraints with concomitant impact on market prices.

Despite announcement of OPEC production cut and drastic decisions in the US monetary policy, crude prices dipped below the psychological $40 a barrel. Demand side concerns have been top of the markets mind. There are as yet no signs of demand revival. The financial crisis and growth concerns may continue for longer time than imagined earlier.

Experts, however, believe, from the current levels, the downside risk to crude prices is limited. Indeed, they are talking about the possibility of over-tightening of the market in the medium term. The supply performance of non-OPEC sources is being closely watched.

Jewellery loses its shine this Christmas


THE country’s gems and jewellery exports are facing the heat of economic meltdown in the US and Europe, as the Christmas orders are down by 15-25% this year, industry leaders said.
“Christmas sales are down 15 to 25% as the major market, the US, is reeling under the financial crisis,” Gitanjali group chairman and managing director Mehul Choksi said, adding that this trend is likely to continue for the next full year.
In the last eight months, there has been a decline in orders as also more of cancellations. The declining trend had begun well before the christmas season.
“There was an average reduction of over 20% in orders for the period April-October 2008,” the gems and jewellery export promotion council said, adding that from November onward, the situation became worse as shipments for November were down 34.25%.
At the manufacturing level, exports of cut and polished diamonds are down 20.18% compared to the same period last year. “The industry has already cut back production by over 25%,” gems & jewellery export promotion council chairman Vasant Mehta said.
The industry is largely dependent upon the US economy and Europe, besides Hong Kong, UAE and Belgium.