Gold prices were flat in Asian trading on Wednesday as investors refrained from making big bets ahead of the U.S. Federal Reserve’s policy decision while keeping a close eye on developments in the Israel-Iran conflict.
Anindit Mukherjee | Bloomberg | Getty Images
The narrow lanes of Zaveri Bazaar, one of the oldest jewelery markets in India’s financial capital Mumbai, became even busier this Diwali as crowds flocked to buy gold on the auspicious first day of the festival of lights.
However, there were some twists and turns.
Mahavir Kothari, a precious metals wholesaler in Zaveri Bazaar, told CNBC that most of the people flocking to the market were there to buy gold coins and bars, not jewelry.
India’s main gem and jewelery trade body told CNBC that more than 40 tonnes of gold was sold in the country on October 19, the first day of Diwali.
Gold worth around 700 billion rupees ($8 billion) to 1 trillion rupees ($11 billion) was sold during the five-day festival that ended on Thursday, according to the Indian Bullion and Jewellers’ Association (IBJA) and the All India Gems and Jewelery National Council (GJC).
Ajay Chawla, CEO of Tanishq, one of India’s largest jewelery chains, has reportedly warned his company that there could be a shortage of gold coins and bullion due to demand during the festive season.
IBJA national secretary Surendra Mehta said that a few years ago, only one out of 10 customers would choose coins or gold bars, but this is slowly changing. He added that jewelry sales this Christmas season were down about 30% compared to last year, according to estimates from his industry group.
Indians’ enthusiasm for buying gold for investment purposes is rooted in their pursuit of profit. Gold prices rose 66% this year through mid-October, but have since fallen sharply. As of Monday, it was still up 55%. Earlier this month, gold prices topped $4,000 an ounce, and some industry experts predict the yellow metal will reach $5,000 in 2026.
World Gold Council data shows that India is the second-largest gold buyer after China, and the country has been a consistent gold buyer over the years, driven by traditional demand for gold during the festive season (October) and wedding seasons (October to mid-January and April to May).
Gold jewelry from a shop in Kolkata, India.
Sonali Pal Chowdhury | Nur Photo | Getty Images
As central banks around the world increase their purchases of gold, accelerating price increases, the yellow metal is increasingly attracting retail investors who fear missing out on the boom.
Goldman Sachs said in a Sept. 30 report that central banks, particularly in emerging markets, have increased the pace of gold purchases by about five times since 2022, when foreign exchange reserves were frozen in the wake of Russia’s invasion of Ukraine.
“We view this as a structural change in reserve management behavior and do not expect a short-term reversal,” the report said.
Experts say this surge in gold prices has led Indians to view gold as an important investment asset rather than just a consumer good.
Anindya Banerjee, head of commodities and foreign exchange markets at Kotak Securities, said gold demand had traditionally been driven primarily by consumption and when jewelery prices rose, consumers would cut back on spending. However, rising prices will not dampen overall demand for gold this Christmas season.
GJC chairman Rajesh Lokde said that despite a significant increase in prices, sales volumes for all five days of Diwali were down by only about 5% compared to last year.
Gold is currently trading at $4,073 per ounce.
“Indian household gold holdings are estimated at $3.8 trillion, or 88.8% of GDP,” Morgan Stanley said in an Oct. 9 report, adding, “This has a positive wealth effect even as gold demand flows remain within bounds due to good macro stability.”
Mukesh Jindal, senior partner at Alpha Capital, an asset management firm that handles assets of more than 100 billion rupees for Indian family offices and high-net-worth individuals, said gold is a good hedge against a weakening rupee and a downturn in the Indian stock market.
Investing includes buying gold bars, coins, exchange-traded funds, and even digital gold. According to data from the Association of Investment Trusts of India, inflows into gold ETFs rose more than six times (Rs 83.63 billion) in September from a year earlier.
Gold’s rally is likely to continue as central banks around the world remain net buyers of gold month-on-month, Jindal said, adding that he advises clients to allocate 5-10% of their portfolios to gold. This is still more conservative than Ray Dalio, the billionaire founder of Bridgewater Associates, advised earlier this month to allocate up to 15% of his portfolio to gold.
