Gold prices in most parts of India have fallen more than Rs 1,000 per 10gm of 24-carat in the past two days, ever since the US Federal Reserve on June 23 signalled an interest rate hike by 2023.

This is the biggest decline for gold in India in 2021, and prices continued to drop on June 25, even as the bullion made a strong rebound in the international market. 

Weak consumer sentiment following the second wave of covid and restrictions in most states crimped physical demand for the precious metal this year. India is the world’s second-largest bullion consumer after China. 

Within India, Kerala is the largest retail market, according to the World Gold Council. In Delhi, the price fell by Rs 700 and Rs 400 on Thursday and Friday, respectively.

In Mumbai, however, the prices dropped by only Rs 60 to close at Rs 48,350. For investors in the country, this, along with the five-day fall in the run-up to the US Fed meeting, created a deficit of as much as Rs 2,000 (per 10gm) in their investment portfolio.

As with almost every part of the international market, global gold prices, too, are impacted by the decision on US interest rates. Any rise in interest rates in the US tends to lead investors towards bonds from gold. The US dollar has also strengthened. If the US Fed rates go up, it will weaken the rupee. The price of gold is likely to remain somewhat range-bound between Rs 45,000 and Rs 55,000 per 10gm opined investment experts.

Despite a strong rebound in international prices, insufficient demand has taken the sheen out of the yellow metal in India, at least for now. While investors are cautious in a volatile market, gold retailers are not unduly perturbed.

Any gold price fall acts as a trigger for more purchases by customers. There are two types of customers when the price falls. The first kind rushes to the market to buy more gold. The other waits for another fall before firming up the purchase decision.

As lockdowns in states such as Karnataka, Tamil Nadu and Kerala are still in force, either partially or fully, the gold retail market has yet to see a revival. Many jewellery showrooms are still to reopen even after the lifting of lockdowns in some markets, according to industry officials.

Industry officials are, however, upbeat about gold as a fundamentally strong asset class. Price volatility does not impact our P&L (profit and loss) because many have hedged their gold adequately.

Indian customers look for long-term gains and they know gold has always given a return. Soon after the first lockdown, saw a lot of young customers make a gold purchase at our showrooms as they found gold as a liquid asset. 

People want to avoid crowded markets and prefer standalone showrooms. Also, strict BIS hallmarking rules have forced many to move away from unorganized gold sellers.