KEY POINTS
- Gold prices have surged over 13 percent since July, dampening festive demand.
- Consumers are opting for lighter jewelry as their spending power is stretched.
- India’s gold imports dropped significantly in September due to rising prices.
The Indian bullion industry’s expectations for a successful festive season have been tempered by the recent spike in gold prices to all-time highs. Rising prices have now eclipsed the enthusiasm that greeted a big reduction in import taxes two months ago.
Duty cut raised expectations
Industry participants were hopeful that demand would increase when India lowered its gold import taxes from 15% to 6% in late July.
Prithviraj Kothari, president of the India Bullion and Jewellers Association (IBJA), stated that everyone was feeling upbeat following the duty drop and believed that the festival season will be fantastic.
India, the world’s second-largest consumer of gold after China, typically sees a spike in sales during the festival season, which includes holidays like Diwali and Dussehra.
But since then, gold prices have increased by over 13 percent, hitting all-time highs in local currency. Because of this, Kothari anticipates a 20 percent decrease in demand throughout the holiday season compared to prior years.
Consumers opt for lighter jewelry
The CEO of PN Gadgil and Sons, Amit Modak, emphasized that the price increase has compelled buyers to choose lighter, less expensive jewelry.
According to Mining.com, he claimed that instead of making big purchases on special occasions, individuals are modifying their purchases to stay within their means since “consumers’ spending power has not kept up with the rise in gold prices.”
Local prices dropped to 67,400 rupees ($803.16) per 10 grams in July after the tariff cut.
However, following a worldwide surge in gold markets, they have now risen to an all-time high of 76,331 rupees per 10 kilos. Due to this price hike, many consumers are now reluctant to invest in gold, which has dampened the enthusiasm for Christmas buying.
Impact on jewelers and imports
The price increase has also affected jewelry distributors and producers.
Many jewelers are already cutting back on their purchases after placing sizable orders before the festival season, according to Ashok Jain, owner of gold wholesaler Chenaji Narsinghji. Jain clarified, “Jewelers are only taking delivery of half of their booked quantity.”
Indian gold merchants have lowered their premiums in an effort to increase demand. Dealers now charge up to $3 per ounce more than official domestic pricing, compared to a $20 premium in late July, immediately following the duty cut.
Despite the early optimism, India’s gold imports reached 136 metric tons in August, a 216 percent increase from the previous month. However, according to dealer estimates, imports fell to just 60 metric tons in September as a result of the ensuing increase in gold prices.
