Record Gold Prices Threaten to Damp Festive Season Demand in India

A recent surge in gold prices to a record high has dampened the Indian bullion industry’s hopes for a profitable festival season, despite optimism following a significant cut in import duties two months ago—the lowest in a decade.

“After the duty cut, there was a surge in interest, and we were confident this festival season would be extraordinary,” said Prithviraj Kothari, President of the India Bullion and Jewellers Association (IBJA).

However, Kothari expressed concern over the recent price hike, which threatens to reduce gold demand by up to 20% in terms of volume as the festive season approaches.

India, the world’s second-largest gold consumer after China, typically sees a spike in gold purchases during the festive season, especially for occasions like Dussehra and Diwali, considered auspicious for gifting gold. This year, Dussehra falls on October 12, with Diwali later in the month.

Kothari noted that consumer buying habits are evolving, with purchases spread throughout the year, driven more by price trends than by festive occasions.

Since last year’s festival season, gold prices have surged over 25%, while consumer purchasing power has lagged behind. Amit Modak, CEO of Pune-based jeweller PN Gadgil and Sons, highlighted that many consumers are now opting for lighter, more affordable jewellery to stay within their budgets.

Import Duty Cut and Market Reactions

In late July, India reduced its import duties on gold from 15% to 6%, pushing local gold prices down to a four-month low of ₹67,400 ($803.16) per 10 grams. Since then, prices have surged by 13.2% to a record ₹76,331, driven by global market trends.

This initial drop in prices saw strong demand, prompting jewellers to place large orders with manufacturers in anticipation of robust festival sales, said Ashok Jain, owner of Mumbai-based gold wholesaler Chenaji Narsinghji. However, with the recent price increase, many jewellers are now only taking partial deliveries of their orders.

A jewellery manufacturer in Kolkata, who requested anonymity, reported that jewellers are avoiding heavy, expensive stock, instead favoring lighter, more affordable pieces.

In an effort to boost demand, Indian gold dealers have lowered the premiums they charge. This week, dealers charged a premium of up to $3 an ounce over official domestic prices, compared to up to $20 an ounce in late July.

Following the duty cut, India’s gold imports surged by 216% in August to 136 metric tons. However, the subsequent price increase saw imports drop to an estimated 60 metric tons in September.