Why India’s Diwali gold rush is different this year

Ahead of the Hindu festival of Diwali, the jewelery market in the lively Lajpat Nagar district of Delhi, the capital of India, is filled with crowds.

Stores remain open even on holidays, and at dusk dozens of cars line the streets while a series of flashy signs beckon shoppers into flower-decorated stores.

Rising gold prices, topping $1,440 (£1,081) for 10 grams, may have slightly dampened demand for jewelery in the world’s second-largest market for the yellow metal this year, but Indians are not willing to give up their passion for gold completely just yet.

Diwali and Dhanteras, a smaller festival that falls on a Saturday this year, are believed to be auspicious days for buying precious metals; Hundreds of thousands of Indians flock to markets to buy gold and silver coins, bars and jewelery that they believe bring wealth and luck.

Prakash Pahlajani, who runs the family-owned Kumar Jewels, told the BBC during a busy evening at his shop that skyrocketing prices are creating FOMO (or fear of missing out) in the minds of buyers who worry prices could rise further.

“As a result, I have more customers this year,” Mr. Pahlajani said.

However, with prices reaching the ceiling (gold by 60% and silver by 70%), jewelers are forced to take precautions against stagnant customer budgets.

“People don’t say, ‘I don’t want to buy.’ Instead, they say, ‘I’ll buy a little less,'” said Tanishq Gupta, a jeweler down the street from Mr. Pahlajani’s shop.

He said he had to be innovative and design pieces that looked detailed but had a smaller amount of gold in them. The 250 mg gold coin, which he sells for as little as $35, is now thinner but made to look as big as the heavier ones.

It weighs a tenth of that, meaning 25 mg coins are also offered on the market.

Pushpinder Chauhan, another retailer in the area, said higher prices have fueled a growing preference for lighter jewelery this year, “especially among younger buyers” who want pieces for everyday wear and not just for special occasions.

Several jewelers interviewed by the BBC noted another clear trend; This year, more customers were buying gold and silver for investment purposes rather than jewelry, which is also reflected in bullion market data.

While gold jewelery continues to account for the largest share of India’s total gold demand, the proportion driven by investments (especially bars and coins) has been steadily increasing, according to the World Gold Council (WGC).

“The share of jewelery fell from 80% in the same period in 2023 to 64% in the second quarter of this year, while investment demand increased from 19% to 35% in the same period,” the council’s head of research, Kavita Chacko, told the BBC.

Much of this demand is also fueled by investments in exchange-traded funds (ETFs) or digital gold, which saw record-high inflows in September.

ETF assets under management are up over 70% this year.

According to WGC, along with retail demand, gold prices are also significantly influenced by India’s central bank; The share of metal in foreign exchange reserves will increase from 9% to 14% in 2025.

In fact, the Reserve Bank of India (RBI) has been “a major pillar of global gold demand over the last three years,” said Kaynat Chainwala, who tracks commodities at Kotak Securities, a brokerage firm.

He said the RBI is stockpiling gold to diversify its foreign exchange holdings, reduce its dependence on the dollar and provide stability during geopolitical stress.

Experts say that with the onset of the festive and wedding season, retail demand for gold and silver is expected to continue rising despite record high prices.

“The rich classes will continue to buy, although this will be a setback for lower-income families,” said Madan Sabnavis, chief economist at state-run Bank of Baroda. “Even if volumes drop, demand will continue in terms of value.”

But some families were priced out of the market entirely.

“I have to think a lot about buying things now, even whether I’m going to buy something,” Bhavna, who is getting married in February, told the BBC outside Mr Pahlajani’s jewelery store.

She has postponed her shopping for now and is waiting for prices to drop a bit so she can go back to finish her wedding shopping.

Experts say such a strong cultural affinity for physical gold, particularly jewellery, means that appetite for the noble metal is unlikely to wane in the long term, despite short-term moderation.

This is especially true in a country where high gold holdings provide solid long-term returns, making many Indians wealthy at a time when growth is stumbling and jobs are hard to come by.

Indian households hold a staggering $3.8 trillion worth of gold, equivalent to 88.8% of the country’s GDP, according to US investment bank Morgan Stanley.

“Given the rise in gold prices, this implies a positive wealth impact on the household balance sheet,” economists Upasana Chachra and Bani Gambhir wrote in a recent note. they said, adding that Indian families also benefit from “cyclical factors of lower interest payments coupled with easing of monetary policy and positive impact on disposable income through direct and indirect tax cuts.”

Although record prices have lost some of the precious metal’s luster, it’s not a bad start to the festive season.

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