Record Gold Prices Deter Consumers; Jewellery Sales Decline

A sudden and sharp rise in gold is deterring consumers from making a purchase. Prices have jumped 13% since the start of 2024, in line with the global rally, with geopolitics, central bank buying and speculative flows driving prices.

Sales are down by almost 90%, said Pankaj Arora, president at the All India Jewellers and Goldsmith Federation—the jewellers' wing of the Confederation of All India Traders. Most people who are still making purchases are those who have gold that they can exchange, he explained.

While the wedding season has ended, Akshaya Tritiya is coming up. However, with the current gold prices, it is likely that the festival might prove lacklustre, he said.

Rajiv Popley, director at the Popley jewellery group, said that there is obviously a hold-up. However, while purchases are happening, because of higher prices and sticky budgets, the quantity of gold or the jewellery that that the customer opts for is less.

He concurred that customers are hesitant and prefer to trade in old inventory. With customers preferring to exchange gold, sales made through recycling gold has risen to as much as 25% from the earlier 10%, he said. "People want to recycle inventory. They don't want to take a risk. That makes sense," he said.

However, trust in the metal is only increasing, according to him. Even with gold prices in excess of Rs 71,000 for 10 grams, the psychology of the Indian customer is that it helps assure them of the worth of the metal, he said.

With India set for the Lok Sabha polls in April, the market will see little activity during the six-week election period, according to the World Gold Council. A diminished wedding season as well suggests that there may not be pent-up demand from Indian consumers for now.

Higher prices are not a deterrent as much as volatility in prices, said Vipul Shah, chairman of the Gems and Jewellery Export Promotion Council. If prices stabilise, then Akshaya Tritiya can see good sales, with customers on the lookout for even a small dip to start buying, he explained. The expectation is that prices will trend higher, he said.

The latest global economic and geopolitical scenario, too, lends credence to the expectation of rising gold prices, Shah said.

Prices To Rise Further?

"Our analysis suggests that gold is currently well-supported by fundamentals, and the low participation from US investors, in particular, augurs well for the rally to continue, in contrast to what we saw in 2011," the note by the World Gold Council said.

Gold's share of assets is low not only from the unrelenting push higher in the prices of other assets but the large issuance of financial securities. Gold's physical supply constraints means that its price has to do the heavy lifting to maintain a sensible share of assets, the note explained. "We've not yet seen this materialise, which is encouraging."