The rising gold prices in the last six months might have brought cheer to investors. But the best consumers of the yellow metal—who wear it around—have been unhappy. So much so, the recently concluded wedding season saw Indians preferring to exchange old gold for their jewellery buys in lieu of the fresh gold purchases.
As per a World Gold Council report, in the January-March quarter of 2024, gold recycling went up by 10%. Even as the demand for jewellery was up 4% during the period, March when prices started zooming up in April, sales fell affecting the margins of jewellery retailers.
In the January-March quarter, Senco Gold said that its retail revenue was driven by 32% growth in old gold exchange amongst other things.
“The shift towards gold recycling instead of new buying is primarily driven by high gold prices, making new purchases less affordable and prompting consumers to recycle old gold for profit or savings. Economic pressures, such as financial instability or job losses, also encourage individuals to liquidate existing gold assets for quick cash. This trend is likely to persist if gold prices remain high and economic uncertainties continue,” says Prithviraj Kothari, Managing Director of RiddiSiddhi Bullions.
As expected, high volatility of soaring and dropping prices in April and May, has stressed out consumers. “Gold price, sudden impact like it goes up very high over one week or if it comes down in a week, people take a pause, they wait and watch where this is going to settle down, and then start coming to the stores again,” said Ramesh Kalyanaraman, executive director of Kalyan Jewellers in the Q4FY24 concall.
Lost Festival Effect
Moreover, the date of an Indian festival, Akshay Tritiya, also shifted to May from April. It’s considered auspicious to buy gold on Akshay Tritiya day – creating a rush for gold coins as well as jewellery. But both prices and volatility played spoilsport here too.
After gold prices hit new highs many times, going over Rs 74,000 per 10 gram in April, they fell sharply into the volatile zone in May. Moreover, Indian rupee has also been depreciated during the time gold started falling, allowing few consumers to take advantage of the falling yellow gold price.
“While high prices have significantly weakened physical gold sales, the trend is influenced by a complex interplay of economic conditions, consumer behaviour, and alternative investment options. Physical gold sales may continue to struggle if gold prices remain elevated due to ongoing economic uncertainty and inflation fears,” opines Kothari.
The equity markets have seen a bull run in the same period between April to June, with Sensex scaling to new highs. Experts opine that “some” if not all of the sheen of gold has been taken away by investors looking at other attractive avenues.
High Prices Versus Low Volumes
This trend of slow or low jewellery sales might continue into the coming festival and wedding season as well if gold prices choose to remain volatile, say experts. The Dusshera-Diwali festival is the busiest for physical gold purchases, and it’s followed by the Winter wedding season that starts in November.
Chirag Mehta, chief investment officer at Quantum Asset Management believes two factors have to set in before physical gold sales pick up. “Gold prices will either have to stabilise or correct for physical gold sales to set in. When it stabilises, be it high or low, consumers will adjust to the prices. After that demand will pick up because in India, there is a lot of cultural affinity to gold,” he adds.
Agrees Kothari, “Consumers and investors will adjust to new price realities and may slowly return to buying patterns as economies recover and prices stabilise.”
Low demand – A New Norm?
If gold prices consistently remain for a long period of time, then too, consumers will be back to jewellery stores – even though volumes purchased could be low. “When it (gold price) is very high, people purchase less volume because they come with the budget, they will not be able to exceed that budget because their pocket does not increase if the gold price increases also,” says Kalyanaraman.
On the other hand, festival wedding demand across apparel and other discretionary purchases in general have remained muted last year. This, in comparison to 2022 when both festivals as well as weddings saw a sharp surge in purchasing due to pent-up demand from the Covid.
In 2023, the demand for gold jewellery fell by 6% according to a World Gold Council report.
This is in spite of consistent growth in prices. “The price strength of 2023 encouraged a trend for lighter-weight or lower-carat items, as well as simply reducing the volume of gold jewellery purchased. The higher margins charged on gem-set and 18k jewellery further encouraged this shift,” the World Gold Council report said.
A few experts believe that a slow festival season could also become the norm due to uncertain economic conditions. “If high prices and economic uncertainties persist, we might see a stabilization in gold demand at lower levels compared to peak years. If the factors driving dull sales in 2024 continue, such as high prices, economic challenges, and changing consumer behaviours, this lower demand could become the norm,” says Kothari.
Indian jewellery buyers are complicated. Due to high cost of acquisition, consumers prefer it to be an investment while also being a vanity product. Between 2023 and 2024, its prices have not allowed many Indians to build their coffers. Whether they’ll come back or not depends on how well gold glitters in their budgets.
Katya Naidu is a senior business journalist who writes about equity markets, startups, energy, infrastructure, real estate and healthcare.
Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.
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