True or Not Thursday: Is price volatility and economic conditions affecting gold demand?

Inflation, job losses, recession and the overall financial crisis – have these affected how people look at gold in India? A market that is primarily driven by weddings, has the current economic scenario played a spoil sport when it comes to buying gold? Jewellery retailers across India present their views

Post By : Vijetha Rangabashyam On 17 September 2020 9:32 PM

Courtesy: Karpagam Jewellery

When it comes to consumption of gold in India, you can’t paint the entire country with the same brush. Every state is different and within the state every region is diverse. Whatever the case may be, gold has proven to be a strategic asset, especially in these trying times, where every other form of investment has been subjected to the brutality of recession. However, in the months of August and September, gold price has been extremely volatile.

Price needs to stabilize

The first week of August saw gold price touching upwards of Rs 54,000 per 10 grams, however, towards the second week of August, gold price has been falling to as low as Rs 50,000 as of 17 September 2020. In India, the sentiment when it comes to gold is very diverse. Historically, with people who buy gold as an investment, the demand invariably increases when the price increases. “When the gold prices jumped after lifting of the lockdown, sentiments were strong, people felt that the yellow metal has proved to be the best investment, and they continued buying. Although this enthusiasm softened after the steep downfall, which has affected the sales, somewhere people still have the trust in the yellow metal,” says Ram Gurumukh Singh of Neelkanth Jewellers, Bengaluru.

Families who want to purchase gold for weddings and other special occasions play a wait and watch game.  “The demand has not really come down because of the increase in gold price. In fact, people want to buy gold jewellery despite the hike in price. What is really affecting the demand is the volatility. Constant fluctuation has been a dampener,” says Priyesh Nagar of Madanlal Chhaganlal Jewellers. People have gone into a state of panic as gold price started to fall. “Till the time gold price was rising, demand was rising – when it started falling demand also fell. People are waiting for gold price to stabilise. Demand has reduced but not as drastically as we had expected it to fall,” adds Salil Jain of Jain Jewellers.

Gold is beyond the miasma of recession

Wedding and festive seasons in India are around the corner. By and large, the decision of buying gold for occasions such as weddings remains undeterred because of the changes in the economy. “Demand for gold has increased, as the wedding season is approaching. And as gold prices have fallen in the last few weeks, people want to capitalise on the opportunity and buy more gold jewellery,” says Abhishek Kajaria of Avama Jewellers.

The demand is primarily driven only by bridal purchase – casual purchases are far too few. “There might be a slight delay in the buying decision, but demand is very much intact. Weddings are happening in a smaller scale. All the functions are happening with lesser number of people,” adds Rohin Hemdev of Lachhmandas Jewellers.

Budget on jewellery remains unchanged

“The budgets have definitely come down, but on the other hand, since the yellow metal has proved to be a good investment, people have understood this and tried to divert some of the investment in jewelry buying,” adds Ram. With all other expenses having come down, and over all wedding costs shrinking due to a decreased scale at which weddings are happening, families don’t mind spending that extra money on gold. On the one hand they get to buy more jewellery and on the other, from an investment point of view, it has proven to be a safe investment – hence the act of buying gold is doubly beneficial.

“Budgets for bridal jewellery have remained unchanged. In fact, budget for jewellery has increased by 20-30 per cent. Gold, jadau, polki and diamond are all fast moving,” adds Kajaria. Purchases for weddings that are scheduled in the months of October, November and December – bridal purchases are happening in full swing. “Even though gold prices are high, people are buying jewellery, because weddings are a mainstay. Lower income group buy worth Rs five lakhs for weddings. There has been a hike of 40 per cent in budget for bridal jewellery,” adds Rajendra Agarwal of Sona Chandis.

People are continuing to buy as per their needs – in fact people from cities are not spending on gold while in rural areas, gold still seems to be the most popular choice of metal. “Demand is normal, as per what we had expected -- bridal jewellery is in demand.  Budget keeps changing – people who have the disposable income don’t mind spending more money on jeweller, while some families have medium-sized budget as well,” says Saurabh Agarwal of Chetmani Ornaments.

Gold is always gracious

As gold has proven to be a solid investment, more number of people prefer to buy jewellery that has more gold content. “For the main wedding, people are inclined towards buying jewellery with 75% gold and 25% polki whereas for cocktail function diamonds are popular,” adds Hemdev. However, plain gold jewellery seems to fast moving and demand for jadau has deteriorated in some regions. “Jadau and polki are less in demand, antique jewellery market is really low, at present – because it is heavy,” adds Saurabh Agrawal. Although the upper class strata of the society are inclined towards buying polki pieces. “People prefer gold jewellery, elite class goes in for polki, middle class is going in for lightweight jewellery,” adds Rajendra Agrawal.

Outlook remains gloomy in some regions

In some states, demand for gold jewellery remains subdued. Says Hansraj Bamalwa of Nemichand Bamalwa & Sons, “Currently because of Covid19 there is very less demand for jewellery. Usually, it has been observed that when gold prices rise, demand for gold also rises. Customer’s demand for polki, kundan and gold will always be there. However, the variety of jewellery that customers will buy is difficult to predict.” Shradh paksha which began 1st of September has also played a role in gold consumption as people normally don’t buy assets during this time. “There is no walk-in at all, maybe hardly one or two people are coming into the store. We have good inventory, but customers are not coming in. Primarily, because of shradh paksha and high gold prices people are not coming ahead to buy,” adds Ravi Chokshi of Damordas Jewellers. However, people who have already invested in ETFs or gold bonds may redeem their investment by buying physical gold. “People have lost faith in banks and they want physical gold in place of paper gold,” adds Bamalwa.

Verdict: Gold buying is deep ingrained in Indian culture. People are willing to buy gold no matter how high the price is as it also serves as very good investment. However, when the price fluctuates, people tend to go into a panic, causing the demand to decrease marginally. 

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