Gold Prices in India: A Sensitive Market

Gold prices in India surged to ₹95,000 per 10 grams on Thursday, mirroring global trends. This phenomenon is not new to the Indian market, which has seen numerous instances of price fluctuations in the past. Several factors contribute to the sensitivity of gold prices in India, including:

• Global trends and geopolitical tensions
• Central bank and institutional investments
• Retail demand and consumer behavior

These factors have combined to create a volatile market for gold in India. The recent surge in gold prices is a testament to the influence of global events and trends on the domestic market. As Renisha Chainani, head of research at Augmont Gold, aptly put it, “With rising geopolitical tensions, central bank buying, and the possibility of economic instability, investors may want to consider increasing their gold allocation to 10-15% of their portfolio from the traditional allocation of 5%.”

Central banks and exchange-traded funds (ETFs) are increasing their gold holdings, which is driving up prices. This trend is expected to continue, with the World Gold Council predicting significant central bank purchases this year. Net gold purchases by ETFs until the end of March climbed to the equivalent of 128 tons, marking a rapid expansion of global ETF ownership of gold.

However, the retail demand for gold remains lukewarm. The India Bullion & Jewellers Association (IBJA) reported that the surge in gold prices by nearly a fifth since the start of the year is prompting ordinary savers to sell gold and make quick money. As Prithviraj Kothari, president of IBJA, noted, “Reports trickling in from different parts of the country show that people are selling gold in good volumes. The trend has picked up more in the last one week.”

Prices may continue to harden further if global institutional demand persists. Gold has yielded positive returns for all but two years this millennium, and a trend that continues could see prices reach ₹1 lakh per 10 grams by next week. This would not only hurt consumers but also trade, with small jewellers at a loss. Trade executives have started manufacturing lightweight jewellery to cope with the reduced demand.

Consumer demand for gold remains circumspect due to the price surge. Sales have dropped as much as 30-40% as consumers postpone purchases, opting to exchange old jewellery instead of buying new. Chainani at Augmont Gold noted that reports indicate sales have dropped as much as 30-40% as consumers postpone purchases.

Despite the challenges, gold prices in India are expected to remain a significant concern for consumers and traders alike. As the market continues to navigate the volatile landscape, it will be crucial for investors to stay informed and adapt to changing market conditions.

Central Bank Purchases and ETF Ownership

Impact on Retail Demand

• Surge in gold prices by nearly a fifth since the start of the year is prompting ordinary savers to sell gold and make quick money.
• Reports from different parts of the country show that people are selling gold in good volumes.
• Trade executives have started manufacturing lightweight jewellery to cope with the reduced demand.

Consumer Demand and Sales

Consumer demand for gold remains circumspect due to the price surge. Sales have dropped as much as 30-40% as consumers postpone purchases, opting to exchange old jewellery instead of buying new.

Definition:

As the market continues to navigate the volatile landscape, it will be crucial for investors to stay informed and adapt to changing market conditions.

Conclusion

Gold prices in India have surged to ₹95,000 per 10 grams, mirroring global trends. The recent surge is driven by central bank and institutional investments, geopolitical tensions, and consumer behavior. While retail demand remains lukewarm, the market is expected to continue navigating the volatile landscape.