India is crazy about gold. But can the love last as prices skyrocket?

September 21, 2019

Mumbai-India (Sept 21)  With their daughter’s wedding set for next February, Janaki and Venkataraman Iyengar needed gifts and silk saris for the big day. Their search took them to Kanchipuram, where they had big plans to buy the finest hand-woven silk clothes and as many shiny ornaments as their money would buy. Only when they arrived did they realise there was a problem: the price of gold had rocketed.

This was something of a sucker punch for the Iyengars, a middle-income couple who had saved for years for this moment. They had planned to gift their daughter 20 pavan of gold (160 grams), in various ornaments, and had managed to set aside 550,000 rupees (US$7,680) from their life savings to cover the cost. This alone was a big ask of Venkataraman, who works at a vehicle service station and makes 30,000 rupees (US$420) a month. But with the new prices the couple were quoted in Kanchipuram, they would have had to shell out an additional 200,000 rupees (US$2,800) – a prohibitive expense, given that the gold price is just one of the many wedding-related expenses they face.

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The Iyengars are hardly alone. Indian households’ voracious appetite for the yellow metal is being tested by a combination of global and domestic factors, not least among them the US-China trade war, weakening economic sentiment at home and abroad, and China and Russia’s decision to stockpile the commodity.

The steep rise in prices is hurting demand in India, the world’s No 2 market for gold, behind China.

In most parts of the country, it is traditional for the bride’s parents to pay for most of the wedding expenses. Gold ornaments, which hold a heavy cultural significance, form an appreciable portion of this expenditure. Now, the Iyengars are unsure as to whether they should limit their outlay to expensive saris, or take a loan to procure gold and jewels.

“We can’t do much about it. Essentially, our family’s reputation and daughter’s relationship with her in-laws depend on it,” Venkataraman said.

“I didn’t expect gold prices to abruptly soar like this. There’s usually some fluctuation but this is a sharp spike,” he said.

Gold bars at a gold jewellery shop in the northern Indian city of Chandigarh. Photo: Reuters


The yellow metal touches every aspect of life in India, from a child’s first birthday to weddings and festive occasions. Farmers invest in gold jewellery when there is a good harvest.

Nearly two-thirds of India’s gold demand comes from rural areas. However, early this month, the price of 10 grams of 24-carat gold hit a record high of 39,885 rupees in India’s domestic bullion market though, in recent days, the price has eased somewhat. Still, with the price wobbling in the 32,000-rupee range in May, the jump of over 20 per cent within a few months has had a noticeable effect on consumer demand, which has since gone into free fall.

“Temporarily, gold is losing its charm, and consumers are [putting their buying] on hold and waiting for a reduction or stability in its price,” said Rajendra Jain, managing director of a leading jewellery brand in India.

According to the Gem and Jewellery Export Promotion Council, sales of gold and diamond jewellery had previously been projected to grow 7 per cent annually over the next three to five years, but the recent downturn has called this into question.

Subdued demand is another worrying sign for the gold-crazed country as its economy stutters.

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Prior to the slowdown, the first quarter of the year had seen a 9 per cent growth in gold sales and the second quarter, a healthy 13 per cent rise, due to the springtime Akshaya Tritiya prosperity festival and seasonal sales.

The picture is likely to be far less rosy when results from the third quarter are released, as even without the rising prices, this period tends to be the weakest for gold as it is neither wedding nor harvest season.

At the beginning of the third quarter, in July, sales took a blow when the government hiked the import duty on gold and precious metals from 10 per cent to 12.5 per cent. The move was announced in the federal budget as an attempt to recapitalise banks and bring down the fiscal deficit. Gold imports reportedly plunged 73 per cent year on year – from 111.47 tonnes in August 2018 to 30 tonnes last month.


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