India’s Bond With Yellow Metal Firms Up Over Uncertainty

Gold prices in local spot markets have hit Rs1 lakh per 10 grams, including 3 per cent GST, amid global trade chaos.

Gold prices are determined by various factors, from central bank policies to industrial demand and investor sentiment. Understanding these drivers is crucial for anyone considering gold as an investment or seeking to comprehend its role in the global financial system.

Incidentally, high prices dampened demand in the jewellery sector, with annual consumption decreasing by 11 per cent to 1,877t. The decline was driven largely by weakness in China (down 24 per cent year-on-year), though Indian demand remained resilient, dropping just 2 per cent in 2024 in a record-high price environment.

Gold has a central role in India's culture, considered a store of value, a symbol of wealth and status, and a fundamental part of many rituals. Among the country's rural population, a deep affinity for gold goes hand in hand with practical considerations of the portability and security of jewellery as an investment.

Gold is considered to be auspicious, particularly in Hindu and Jain cultures. The ancient law-giver Manu decreed that gold ornaments should be worn for important ceremonies and occasions. Aside from Diwali, one of the most important dates in the Indian calendar, regional festivals across the country are celebrated with gold: in the south, Akshaya Tritiya, Pongal, Onam, and Ugadi; in the east, Durga Puja; in the west, Gudi Pavda; in the north, Baisakhi and Karva Chauth.

Gold is central to more personal life events too. Gifting gold is a deeply ingrained part of marriage rituals in Indian society—weddings generate approximately 50 per cent of the annual gold demand in India.

Gold's steep climb and ongoing volatility are keeping many consumers on the sidelines, with demand for jewellery continuing to be limited to need-based purchases, particularly for weddings. There has been a noticeable shift in consumer behaviour in response to soaring prices, with more buyers opting to trade in old jewellery for new: anecdotal reports suggest that 40–45 per cent of purchases now involve some form of exchange.

While festive buying has continued, it remains modest and localised, often tied to specific regions and communities. At the same time, the investment appeal of gold is gaining prominence. Anecdotal reports suggest that demand for bars and coins have been resilient, even at high price levels.

Early indicators of bookings for regional festivals such as Akshaya Tritiya – a key period for gold purchases – point to strong consumer sentiment. Leading retailers plan to open between 150 and 200 new showrooms over the next 12 months, setting the stage for continued gains in market share and deeper penetration across regions.

The RBI added a modest 0.6t of gold to its reserves in March, resuming purchases after a pause in February. This brings the RBI's total gold holdings to 879.6t or 11.7 per cent of its total foreign exchange reserves – the highest level both in quantum and share.

According to data from the Ministry of Commerce, imports climbed to $4.4bn – nearly double the previous month's figure and significantly higher than the $1.53bn recorded a year earlier.

India, the gold-loving country, has a stronger fondness for the metal and currently ranks second in global consumption. It serves as both an investment opportunity and a luxury item. Metal's value has increased dramatically throughout the years, making it one of the safest assets to invest in.