The recent slump in gold prices to a seven-month low in India is expected to ignite demand during the current festive season, a period when Indians traditionally purchase coins and ornaments. The increased demand, typical of the October-December festival season, is considered auspicious for buying and wearing gold, potentially bolstering the global gold market. However, while this bodes well for consumers and jewelers, it may place added pressure on India’s trade deficit, which has already expanded due to rising oil prices.
Suvankar Sen, managing director of Kolkata-based Senco Gold Ltd, expressed optimism about the situation: “Overall, the sentiment is positive, and this price drop has come at the best time for the market.” Foot traffic in stores has risen, and demand in India’s festival season is projected to be 10% to 15% higher than the previous year.
Gold prices in India, the world’s second-largest consumer, have declined by approximately 7% since reaching a record high in May. Despite the Israel-Hamas conflict temporarily arresting the fall in global gold prices, they are facing pressure from surging U.S. bond yields due to expectations that the Federal Reserve will maintain tighter monetary policies for an extended period. Higher rates typically have a negative impact on gold, which is a non-yielding asset.
The brighter outlook for demand has lifted the shares of major jewelers in India. Kalyan Jewellers India Ltd. has seen a 15% increase so far this month, Tribhovandas Bhimji Zaveri Ltd. has risen by 5%, and Tata Group’s Titan Co. has advanced by almost 4%. Senco, backed by SAIF Partners, has seen its shares double from the offer price since its listing on Indian exchanges in July.
The World Gold Council had previously estimated that demand in India, the most populous country globally, might drop to 650 to 750 tons this year, the lowest since the 2020 coronavirus pandemic. This is a decline from 774 tons in 2022. The group is set to release its data for the July-September quarter and estimates for the full year soon.
In contrast to earlier predictions of a sharp drop in demand, there are now expectations that demand might remain flat this year. Chirag Sheth, principal consultant with Metals Focus Ltd, noted, “If prices remain around these levels until Diwali in November or fall further, then we can see a fairly good increase in sales,” referring to the Hindu festival of lights.
Sheth also highlighted that some of the price benefits for consumers would hinge on the performance of the local currency, as a weaker rupee could offset the advantages of lower global gold prices. A depreciating rupee makes gold more expensive in India, where nearly all the bullion used is imported, primarily from Switzerland.