Markets
Mint Primer: Will India go for gold this festive, wedding season?
Summary
- Indians typically buy gold jewellery for weddings, Diwali and Dhanteras. Most are unlikely to cancel planned purchases, or even trim their budget for the season.
As Indians line up to buy gold jewellery amid festivals and weddings, gold prices are repeatedly hitting new highs, reaching over ₹78,000 per 10g in the national capital region. Mint explains how this might impact yellow metal sales in the festive season.
Where are gold prices going?
The import duty on gold was cut from 15% to 6% in July. The next month, gold prices dropped from ₹75,000-76,000 to ₹69,000-71,000 per 10g across major Indian cities. This resulted in a demand spike. Imports doubled year-on- year to more than $10 billion in August, as per the World Gold Council. Large jewellers reported upwards of a 20% jump in revenue and same store sales growth during the September quarter. Since September, though, gold prices have started rising again— prices on the MCX Gold exchange and international markets have already hit fresh all- time highs this week.
What’s causing prices to rise?
For several months now, central banks have been buying up gold reserves to hedge against global volatility. This reached a peak in July, when net purchases hit 37 tonnes, according to the World Gold Council. Net buying fell to 8 tonnes in August. Poland, Uzbekistan, and India are among the biggest buyers. Reuters reported that central banks are still keen on gold as the Russia-Ukraine and Israel-Palestine conflicts intensify and tensions rise in the Korean Peninsula. Gold is also rising with lower interest rates. The US Fed cut rates by 50 basis points in September. Another cut is likely next year.
How are jewellery buyers affected?
Indians typically buy gold jewellery for weddings, Diwali and Dhanteras. Most are unlikely to cancel planned purchases, or even trim their budget for the season. Instead, jewellers say, most customers are pausing for 7-10 days to see where prices land. If they anticipate a further price rise, they may advance their purchases. Others may wait for prices to stabilise or even fall.
Also Read: Is it wise to buy gold before Diwali and hold till US Presidential Election results?
So will demand not shift at all?
Customers may not cut spending, but many are shifting to cheaper or lighter pieces. They may also shift away from pricey gold jewellery studded with diamond and other precious stones. Value-conscious customers buying affordable jewellery from small, local jewellers may lead this shift. This is likely to hurt jewellers’ margins. Stocks of major jewellers have had a chequered performance in the last one month. Larger jewellers are betting customers will absorb higher prices, seeing gold as a longer-term investment.
Also Read: Why gold will be missing the glitter this Diwali
How are jewellers responding?
Many jewellers have been using new manufacturing techniques to make lighter gold jewellery and reduce the amount of gold in elaborate sets, said Kalyan Jewellers executive director Ramesh Kalyanaraman. These boost margins while offering customers alternatives. Brands are also extending offers and promotions, discounting making charges, simplifying exchange offers and even gifting foreign trips to customers spending upwards of ₹10 lakh.
