Gudi Padwa Special: Will high gold prices dampen the festive spirit of buyers?
Gold has always been a symbol of prosperity, tradition, and wealth in India. From Diwali to weddings, the purchase of gold is considered auspicious and plays a significant role in celebrations. However, as we approach another festive season, there’s a looming question: will the current high gold prices dampen the spirit of buyers?
In recent months, gold prices have surged to record highs, reaching over Rs 90,000 for 10 grammes. This has left many potential buyers hesitant, impacting purchases during critical seasons such as Dhanteras and Diwali. While higher prices are certainly a concern, it’s important to consider gold's role as an asset, its historical trends, and the overall sentiment surrounding festive buying.
The price surge
The yellow metal's bull run has been driven by inflationary pressures, geopolitical tensions, and fluctuations in global currencies. For families looking to purchase traditional gold jewellery or coins, today’s prices can be a deterrent.
Despite this, India’s gold demand continues to be high, both because of its appeal as an investment and cultural practices. Nonetheless, the rising prices have created a shift in preferences — many consumers are opting for more affordable alternatives like silver or gold ETFs , rather than traditional gold jewellery.
Gold vs equity
Historically, gold has been known as a safe asset, particularly during periods of uncertainty. Recent research on emerging markets, including India, shows that gold has outperformed many equity indices in terms of both returns and risk-reward ratios over long periods.
India’s performance has been noteworthy, as the country's equity index outperformed returns on gold across all timeframes (10, 15, 20, and 25 years). However, gold's risk-reward ratio was better in longer timeframes (20 and 25 years), suggesting that despite high prices in the short term, gold remains a solid investment option.
Also read: Gold nears Rs 90,000: Time to buy, hold, or book profits?
Gold ETFs: a good alternative
Despite the price of gold, gold ETFs have seen significant growth. These allow investors to to hold gold without the need to buy physical gold, bypassing high transaction costs and making charges.
In October 2024, gold ETFs saw net inflows of ₹1,961 crore, a 59 percent increase from ₹1,233 crore in September 2024.
By February 2025, inflows surged to ₹3,846 crore, pushing the AUM to ₹55,677 crore, an eight-fold increase from five years prior.
The World Gold Council also reports that Indian gold ETF holdings nearly doubled over four years, reaching a record 54.5 tonnes by October 2024, further underscoring the surge in investor interest despite the high prices.
Impact of high gold prices on imports
Rising gold prices have also impacted gold imports, which typically surge before major festivals like Diwali. Imports dropped 25 percent in 2024, indicating that many buyers may be waiting for prices to stabilise.
However, despite the slowdown in physical purchases, the demand for gold as an investment remains robust, driven by factors like global geopolitical tensions and the desire for wealth preservation.
Also read: Gold price surges come and go, stick to a 10-15% allocation
The psychological impact of high gold prices
While gold’s performance suggests it remains a strong investment, the psychological impact of high prices cannot be ignored. Sharp price increases lead many buyers to feel that gold is now out of their reach. During Dhanteras in 2024, gold sales dropped 15 percent, with many consumers turning to silver instead, which provided a more affordable option.
Retailers have reported increased sales of silver coins and jewellery, which have become a more attractive alternative.
Will the festive spirit be dampened?
Though gold jewellery sales might decline, gold ETFs and silver are emerging as viable alternatives for buyers. As the festive season unfolds, we are likely to see a shift in purchase behaviour, with consumers opting for such affordable products.
Ultimately, despite the surge in prices, gold remains an integral part of India’s festive culture, and while it may not be as accessible for everyone, it continues to hold value as a symbol of prosperity and a secure investment option for the long term.
(The author is the Head of Department, Mutual Funds, 1Finance)(Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions)