Soaring bullion prices threaten to dull India's festive gold sparkle

Gold demand in India this festive season is expected to be weaker than last year, as record-high prices are likely to curb jewellery purchases, outweighing modest gains in investment demand.

Weaker demand in the world's second-largest gold consumer could limit a rally in global prices, which hit a record high last week. But sluggish demand for gold imports could limit India's trade deficit and support the rupee. Local gold prices, which scaled a record peak of 109,840 rupees per 10 grams last week, have risen 42% year-to-date, after gaining 21% in 2024.

"Consumers have a fixed budget, and it's not keeping up with rising prices. We're expecting demand to fall by about 10%-15% in volume," Amit Modak, chief executive of PN Gadgil and Sons, said on the sidelines of the India Gold Conference in New Delhi. Indians will celebrate Dussehra and Diwali in October, festivals during which buying gold is considered auspicious.

The December quarter typically accounts for about a third of India's gold sales, as it coincides with the start of the wedding season and festivals. Gold demand in the December quarter last year stood at 265.8 metric tons, boosted by a price correction just ahead of the festive season after New Delhi slashed import duties on the metal to 6% from 15% in a bid to tackle smuggling.

Consumer sentiment has improved in the last few weeks despite rising prices, and in value terms, demand will still be much higher even if volumes decline, said Sachin Jain, CEO of the World Gold Council's Indian operations. Besides, investment demand, especially through exchange-traded funds (ETFs), has been rising as gold has been delivering better returns than competing asset classes, Jain added.

Retail gold buying could get a boost from the government's move to cut goods and services tax (GST) on consumer items, as this will leave people with more disposable income, Harshad Ajmera of wholesaler JJ Gold House in Kolkata. Earlier this month, India announced tax cuts on hundreds of consumer items ranging from soaps to small cars to spur domestic demand.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)