Gold jewellery demand during this festival and Dhanteras (considered an auspicious occasion to buy the yellow metal) is expected to be muted due to the sharp rise in bullion prices in the last few days.
In the last month, gold prices have rallied by ₹3,921 per 10 grams or 5 per cent to ₹77,410 per 10 grams on Friday against ₹73,489 logged on September 16, as per the Indian Bullion and Jewellers Association of India.
Similarly, silver has also jumped to ₹92,283 a kg on Friday against ₹88,314 logged on September 16.
In the international market, spot gold scaled to a new lifetime high of $2,723 an ounce before closing at $2,722 an ounce on Friday.
However, with the surge in gold prices, domestic demand has turned weak forcing large dealers to offer a discount of $8 an ounce over the official domestic price to wholesale jewellery manufacturers.
Gold imports tripled to 140 tonnes in August following the Government’s decision to cut import duty to 6 per cent from 15 per cent. With the demand not playing out as expected, gold is being offered at a discount jewellery manufacturers.
Prithviraj Kothari, Managing Director of RiddiSiddhi Bullions, one of the largest gold importers, said high gold prices during the Dhanteras and Diwali seasons are likely to affect consumer demand.
While these festivals traditionally boost gold purchases due to their cultural and religious significance, elevated prices -- reaching nearly ₹77,000 per 10 grams -- may prompt buyers to reduce the size of their purchases, he said.
Demand stimulation
Retailers offer discounts to stimulate demand, but many consumers may hold back, hoping prices fall. Nonetheless, the festive sentiment will still drive moderate demand, albeit lower than usual levels, he added.
Besides gold jewellery, consumers are also attracted to buying gold in small quantities in demat form by investing in Exchange Traded Funds or gold mutual schemes.
Inflows into Gold ETFs have surged by nearly 88 per cent since the beginning of this calendar year at ₹1,233 crore in September, up from ₹657.46 crore in January.
Ashwini Kumar, Senior Vice President and Head Market Data, ICRA Analytics said investors favour investing in Gold ETFs due to liquidity, transparency, cost-effectiveness, and ease of trading compared to physical gold. The heightened activity in these funds is also driven by the prospects of US Federal interest rate cut in the coming months, he said.