India’s Gold Appetite Affected Due to Elevated Prices and Evolving Investments

Gold prices in India are currently hovering around 61,000 rupees ($737.75) per 10 grams (0.35 ounces) in Mumbai. This is a notable increase from the roughly 53,000 rupees observed a year earlier.

Gold has encountered a diminishing allure in India, with elevated prices discouraging individuals from purchasing the precious metal. Additionally, other investment options are becoming more appealing, causing a shift in the preferences of potential investors. This trend could potentially cast a shadow over the festive season, which is traditionally a period when Indians exhibit heightened interest in purchasing gold, often in the form of jewelry, bars, and coins.

Vineet Agrawal, the co-founder of Jiraaf, an alternative investment platform situated in Bengaluru, remarks, “The demand for gold in India has been falling for the last two consecutive quarters and the volume impact on demand is observed both for jewelry and investments.” He notes that the surge in stock market activity has posed a challenge to the demand for gold as an investment, especially considering the rising appeal of equity markets and alternative fixed-income investments.

Gold prices in India are currently hovering around 61,000 rupees ($737.75) per 10 grams (0.35 ounces) in Mumbai. This is a notable increase from the roughly 53,000 rupees observed a year earlier. The escalation in the rates of this precious metal in India can be attributed to a variety of factors, including the global rise in prices due to gold’s reputation as a safe-haven asset amid concerns about inflation and economic instability. Additionally, the depreciation of the Indian rupee against the US dollar has contributed to the elevated cost of gold in India.

As the festive season approaches, there is anticipation regarding the potential demand for the precious metal. India’s festive season commences this month and reaches its zenith during Diwali, which falls in November this year. However, the recent decline in gold purchases has sparked concerns among forecasters.

Recent data from the World Gold Council reveals that demand in India during the April to June quarter totaled 158.1 tonnes, representing a 7% decline compared to the previous year. India, being the world’s second-largest consumer of gold after China, has a profound cultural, social, and religious connection with the metal. It is also viewed as a means of wealth preservation, particularly in rural areas where a significant portion of the population remains outside the formal financial system.

Gold jewelry, a significant contributor to consumption in India, witnessed an 8% decrease, amounting to 128.6 tonnes during the second quarter. This decline can be attributed to the record high prices of rupee gold, which have impacted affordability and consumer sentiment.

Despite the current dip in purchasing, experts are of the opinion that India’s appetite for gold remains strong. However, the immediate outlook for demand will be influenced by various factors. Savir Bansal, founder of BeKifaayati, a financial services company, notes that “gold is often seen as a hedge against inflation, and with inflation rates rising in India, there could be increased demand for gold as a way to protect against currency devaluation.” He also highlights that “a stronger dollar could make gold more expensive for buyers in India, which could dampen demand.”

While momentum might have been impacted by high prices, jewelry retailers in India are optimistic about a surge in purchases during the upcoming festive season. Parth Khanna, a jewelry designer in New Delhi, remarks that many clients are interested in buying gold jewelry at the beginning of the festive month.

The evolving preferences of Indian investors also play a role in this changing landscape. Individuals are increasingly exploring alternative forms of investment, such as real estate, equities, mutual funds, and foreign investments. The soaring stock markets in India and the country’s relatively robust economic growth have made stocks and equity mutual funds more attractive to retail investors.

In recent years, Indian authorities have taken steps to integrate gold into the formal financial system. This includes initiatives such as sovereign gold bonds, which offer tax benefits. Additionally, the availability of exchange-traded funds (ETFs) and digital gold has expanded investment options for gold enthusiasts.

While the current phase might see a dip in gold purchases in India, the enduring cultural significance and historical performance of the metal continue to make it an attractive option for Indian investors. The outlook for its demand will be shaped by a myriad of factors, including economic trends, inflation rates, and market sentiment. As the festive season approaches and economic conditions evolve, the dynamics of gold demand in India are likely to see further shifts.