Gold losing its lustre in India, but festive season could rekindle demand

Key Concepts:

• Gold demand in India
• Impact of high gold prices
• Cultural and religious significance of gold
• Festive and wedding season demand
• Gold as an investment and status symbol
• World Gold Council data
• Safe haven asset
• Rupee depreciation
• Jewelry vs. other gold investments (bars, ETFs, digital gold)

Gold Demand in India: A Balancing Act

• Slipping Demand: Gold demand in India has been decreasing due to soaring prices. These high prices are attributed to tariffs, geopolitical uncertainty, and a weak rupee.
• Cultural Significance: Despite the high prices, gold retains significant cultural and religious importance in India, particularly during the Hindu festival season (peaking with Diwali in November) and wedding season.
• Investment and Status: Gold is viewed as both an investment and a status symbol. It's considered auspicious to buy during certain Hindu festivals and is a traditional part of wedding dowries, serving as a way to store wealth.
• Largest Consumer: India is the world's largest consumer of gold jewelry, with over 560 tons purchased last year.

Impact of High Prices on Gold Consumption

• Shift in Demand: The World Gold Council reports a 10% decrease in overall gold demand in India during the second quarter of the year compared to the same period in 2024, totaling 135 tons.
• Jewelry Decline: Gold jewelry demand saw a 17% decline.
• Investment Increase: This decline was partially offset by a 7% increase in other gold investments, including gold bars, digital gold, and exchange-traded funds (ETFs).
• 5-Year Low: The World Gold Council anticipates India's gold consumption to reach a 5-year low this year.

Festive Season and Future Demand

• Crucial Period: Analysts emphasize the importance of the upcoming festive season in determining the form in which people will buy gold – whether it will be ETFs, bars, and coins, or jewelry.
• Price Sensitivity: There's a cautious outlook regarding a significant surge in gold purchases during the festive season due to the high prices.

Global Factors and Rupee Depreciation

• Safe Haven Asset: Globally, gold is considered a safe haven asset, attracting investors during times of uncertainty. International gold prices have been rising due to trade and geopolitical tensions.
• Rupee Impact: Gold prices in India have been hitting new highs because the rupee has depreciated against the US dollar, making imported gold more expensive.

Jeweler's Perspective

• Optimism: Jeweler Sanit Shriml remains optimistic, believing that demand could push prices even higher during the festive season.
• Security and Stability: He highlights the "glitter, the glamour, the reserve, the stability, the security of mind" that gold provides, emphasizing its role as a reserve for future uncertainties.

Conclusion

While gold consumption in India may not return to its previous levels, its cultural value ensures that the precious metal will remain relevant. The festive and wedding season will be a key indicator of how consumers adapt to the higher prices, potentially shifting their preferences towards different forms of gold investment. The interplay of global economic factors, the strength of the rupee, and the enduring cultural significance of gold will continue to shape the Indian gold market.