It’s the beginning of the festive and wedding season. The one item Indians love to splurge on during this period is the yellow metal. The markets are decked up and sellers are offering incentives to lure customers at a time when gold prices are rocketing. Will they buy more or less when a troika of factors is at play?
International gold prices have risen due to uncertainty created by the Israel-Hamas war. Prices rallied from $1,820 to $1,850 in just a day and continued to march upwards. Fears of a broader spillover could make gold more attractive for investors and drive the prices further up. Falling US bond yields amid hopes that the Fed will hold off on another rate hike will also feed into the price of the yellow metal.
“This sudden volatility in prices comes as the demand for safe-haven assets such as gold is bolstered amid geopolitical tensions. A further rally in prices therefore hinges upon developments on this front. Moreover, expectations of the US Fed holding off on another rate hike in November will further support gold prices as interest rates and gold prices have an inverse relationship,” said Aniket Dani, Director-Research, CRISIL MI&A.
Gold, the go-to safe haven in times of turmoil
The Israel-Hamas conflict has introduced a layer of uncertainty into the global economy. Geopolitical tensions often send investors flocking to safe-haven assets like gold.
On October 20, 2023, the gold prices hit their highest since mid-May. As per a Reuters report, it has surged about 9 per cent in the past two weeks as investors opted for the safety of bullion on fears that the Israel-Hamas war could escalate into a wider Middle East conflict.
However, the rise in gold prices is not likely to deter Indian consumers from their affinity for the precious metal, especially when the festive and wedding season has just started when gold is bought for religious, cultural and emotional value.
According to Suvankar Sen, MD & CEO of Senco Gold & Diamonds, the long on-going war in Ukraine had kept the prices moving upwards and with the tensions in the Middle East now, the uncertainties have increased. People would want to invest more in gold, as they consider it a safe asset.
The war versus weddings and festivals
Indian consumers’ unwavering demand for gold is rooted in tradition and culture. Gold is not just an investment; it’s a symbol of wealth. Even in the face of rising gold prices due to geopolitical turmoil, Indians will continue to turn to gold for festivals and weddings.
The festive season in India is a time when gold demand traditionally surges. As Diwali and other festivals approach, many Indians consider buying gold as a symbol of prosperity and wealth. Considering this factor, the festive season is likely to boost the demand for the yellow metal even amid high rates. “With Dhanteras and other major festivals coming in, we expect the demand for gold to remain resilient,” said Sen.
The upcoming wedding season is another critical period for the gold market. Weddings are lavish affairs in India, and gold jewelry plays a central role in these celebrations. The high prices might result in low volume of gold being bought. However, in terms of value, there will be no significant drop. Bridal jewellery comprises half of gold demand in India.
“Rising gold prices may deter retail purchases during the festive season due to reduced affordability, but the wedding season remains a key driver in India as bridal jewellery accounts for at least half of the jewellery market in India,” said CRISIL’s Dani.
Patchy monsoon and the demand for gold
A patchy monsoon could play a spoilsport for jewellery business due to reduced demand from rural areas. High inflation has also eaten into the household budgets and led to reduced discretionary spending.
Most of the jewellery demand in India stems from the rural region. According to Dani, the impact of a deficient monsoon on farm incomes remains monitorable and can swing gold demand during the festive season.
“With the upward march in gold prices coinciding with the peak season, companies are likely to ramp up offers on making charges and other benefits to customers in a bid to stoke demand. This, coupled with elevated raw material prices, may impact margins as companies focus on higher offtake during the festive season,” he said.
