Gold's Diwali gloom hides quiet glitter in India's bullion backrooms

Prime Minister Narendra Modi-led government has sparked festive cheer with its big GST reforms, but in desi households, gold remains the heart of every celebration. And, with bullion prices through the roof, many Indians this festive season are likely to give gold jewellery shopping a miss or at least trim it down.

Demand for ornaments is likely to drop by as much as 27% from a year ago in volume terms during the three-week buying period, as per Surendra Mehta, national secretary at the India Bullion and Jewellers Association. Consumers, especially in big cities, are postponing spending due to high costs, he said.

Even during the first leg of the festive season, gold demand from Raksha Bandhan to Onam, fell 28% from a year earlier to 50 tonnes, according to the India Bullion & Jewellers Association (IBJA).

Jewellers said the fall—the sharpest in three years, or since the Covid period—was due to a 49% year-on-year rise in gold prices, which weighed on consumer sentiment. While many buyers stayed away, those who did shop mostly opted for lower-carat and lighter pieces, they added.

ALSO READ: Gold hits record high on safe-haven rush; silver follows suit

Gold prices climbed to a record high on Tuesday, driven by safe-haven demand on fresh U.S.-China trade concerns, while broader economic and political uncertainties and expectations of further US interest rate cuts also lent support. In the Indian market, the price is hovering above Rs 1 lakh per 10 grams at the retail end, discouraging families, who generally allocate a fixed budget for their gold shopping.

Is it all bad news?
Gold has long been a preferred gift for weddings and festive occasions in India, while also serving as a popular investment. However, during a season when jewellery demand usually peaks — beginning with the nine-day Navratri festival in September and continuing until Diwali in October — bullion prices are nearly 50% higher than they were in the same festive period last year.

As a result, gold demand may have dropped, but industry bigwigs are still optimistic for a good festive season.

⁠Kalyan Jewellers’ Executive Director, Ramesh Kalyanaraman, said the company is ‘upbeat’ about the ongoing season and is fully prepared with fresh collections, campaigns and the launch of 15 more showrooms before Diwali.

ALSO READ: Gold demand dips as soaring prices hit jewellery sales

With prices trending upward, customers are “choosing to buy rather than wait”, he told ET Online. “In urban and Northern markets, there is growing interest in 18K gold, which was earlier used mainly for diamond jewellery, and is now also being chosen for even traditional designs in gold. In the South, the preference is still for 22K when it comes to gold jewellery.”

Sharing a similar sentiment, Senco Gold said it expects robust festive and wedding season sales in the second half of FY26, confident of sustaining 18-20% topline growth for the year despite high gold prices.

"Year-on-year, gold prices are already up by 14-15%. Despite this, our outlook for consumer demand in Q3 and Q4 remains optimistic, underpinned by a positive economic environment and the recent GST rate cut. We are confident of achieving 18-20 per cent topline growth for FY26," as per Senco Gold MD & CEO Suvankar Sen.

ET spoke to market watchers to understand what’s driving retailers’ confidence amid the record-high prices. Most large players are sitting on low-cost inventory, and the sharp rise in gold prices will translate into inventory gains, allowing them to post healthy profits in their books, explained Rahul Kalantri, Vice President- Commodities at Mehta Equities Limited.

However, Kalantri warned that the operating reality is different. Jewellery companies are facing margin pressure, as making charges have remained largely unchanged compared to a year ago, even though gold prices have surged from around ₹70,000 to nearly ₹1,14,000 per 10 grams, he stated.

“This means that while accounting profits may look strong due to inventory revaluation, EBIT margins are likely to remain under pressure, reflecting weaker underlying demand and limited pricing flexibility.”

Demand has been under pressure for much of the year. India bought 17% less jewellery between April and June than a year earlier, with total purchases of the precious metal seen dropping in 2025 to the lowest level in five years, according to a World Gold Council report in July.

The coin currency
Even as jewellery demand sinks, one small corner of the market has managed to keep its head above water–gold coins, suggesting that investment demand for gold remains intact.

Keyur Shah, chief executive, Muthoot Exim, which sells gold coins, told ET Bureau in September that 2-5 gm coins and 5-10 gm jewellery see the strongest demand among its low- to mid-income clients. Compared to last year, the trend still holds, though customers at times shift to lower grammage if prices go up suddenly and they have to make the purchase because of their own time deadlines, he said.

The demand for gold coins is a sign that not all love is lost between Indians and the yellow metal. The steady sales of gold coins show that Indians still see gold as a reliable investment and a safety net, according to Darshan Desai, CEO - Aspect Bullion & Refinery.

When prices rise, buyers often move away from jewellery, which comes with higher making charges, and instead focus on pure gold in coins or bars, Desai said, adding that it reflects “smart consumer behaviour.”

Although the growing appetite for investment-ready gold might eat into jewellery sales. Some “cannibalisation” of gold jewellery demand is also likely to happen with the continuing rise in prices, noted Kinjal Shah, Senior Vice President and Co-Group Head, ICRA Ltd.

For Indians, gold is deeply tied to cultural, religious and social traditions, and whether record-high prices will dampen their appetite for the yellow metal in the coming days remains to be seen.