The glitter of gold during the peak festive season may lose its shine as rising prices threaten to impact demand significantly. The World Gold Council (WGC) has cautioned that the upward trajectory of gold prices could lead to the lowest purchase volume in three years.
It’s worth noting that despite a recent dip, gold prices are hovering near record highs. India, the world’s second-largest consumer of the precious metal, may experience a decline in gold purchases. Such a scenario could potentially put the brakes on the global gold price rally while aiding in narrowing India’s trade deficit and providing support to the rupee.
Somasundaram PR, the Regional Chief Executive Officer of WGC’s Indian operations, has highlighted that the higher prices during the December quarter, traditionally the period with the highest sales of the year, might discourage purchases.
Traditionally, gold demand in India strengthens towards the end of the year, coinciding with the traditional wedding season and major festivals like Diwali and Dussehra when acquiring gold is considered auspicious.
However, the recent surge in local gold prices, nearing Rs 61,396 per 10 grams, is approaching the all-time high of Rs 61,845 earlier this year. In contrast, last year’s prices in the December quarter were nearly 20 percent lower than this year’s levels.
Expectations are that demand in the December quarter could fall short of the 276.3 metric tons recorded in the previous year.
Somasundaram has emphasized that the current prices exert a significant influence on the market. Nevertheless, a substantial price drop closer to Diwali, which is set to be celebrated in the second week of November, could potentially alter the situation.
In the July-September quarter, gold consumption in India saw a 10 percent increase, reaching 210.2 metric tons, driven by improved demand for both jewelry and investment due to corrections in local gold prices.
However, from January to September, gold demand dipped by 3.3 percent, totaling 481.2 metric tons, reflecting sluggish demand in the first half of the year.
For 2023, it is anticipated that demand could decline to approximately 700 metric tons, marking the lowest figure in three years, down from 774.1 metric tons the previous year.
Higher gold prices have led some individuals to sell their old jewelry and coins, resulting in a 37 percent increase in scrap supplies, reaching 91.6 tons in the first nine months of the year, according to WGC data cited in the Reuters report.
This trend is expected to persist into the December quarter if prices remain at their current level, as suggested by Somasundaram.