Surging gold prices hit India's retail jewellery sales

India’s retail jewellery sales have taken a significant hit over the past couple of months as high gold prices have kept consumers away from stores. 

The rally in gold prices to repeated new all-time highs since the start of the year has weighed heavily on the retail demand for gold jewellery.

Since the beginning of the year, gold prices have climbed more than 11%, while hitting a series of record highs.

Prices on COMEX had hit a record high of $2,974 per ounce earlier this month. 

“As of mid-February 2025, Indian gold dealers are offering discounts of $30 to $38 per ounce compared to international prices, primarily due to high domestic prices and subdued demand during the wedding season,” Prithviraj Kothari, managing director of RiddiSiddhi Bullions Limited (RSBL) told Invezz. 

India's domestic jewellery sales down

Domestic prices have risen 14% to a record high of 86,831 rupees per 10 grams, mirroring the rise in international prices. 

This is partly due to the rupee depreciating 1.1% against the US dollar year-to-date, according to the World Gold Council.

Experts and retailers said due to higher prices, consumers have been opting for lighter carat gold jewellery. 

Consumers are delaying purchases and opting for lighter designs (14K & 18K gold), Kothari said.

The decline in rural demand, a key driver of the jewellery market, is attributed to inflation and reduced disposable incomes. 

This has resulted in a shift in consumer preferences towards silver and gemstone-studded jewellery, as well as alternative investment options like digital gold and sovereign gold bonds, according to Kothari.

“If prices remain elevated, demand may stay subdued, with only a slight recovery expected during the upcoming festive and wedding seasons,” Kothari added. 

Reports indicate a 70-80% drop in sales nationwide, primarily due to record-high gold prices, which have led consumers to postpone purchases in anticipation of price reductions, according to Kothari. 

Steep gold discounts

“This slowdown in jewellery demand has left retailers reluctant to restock, as they face challenges in meeting payment terms with manufacturers,” Kavita Chacko, research head, India, WGC said in a report. 

The widening gap between domestic and international prices reflected the subdued demand environment.

“Since December, domestic gold prices have been trading at a discount to international prices, with the gap widening from an average US$3/oz in December to US$23/oz,” Chacko said. 

According to Kothari, the discounts as of the middle of February were even higher in the range of $30-$38 per ounce as mentioned earlier.

“In January 2025, gold discounts in India widened to six-month highs as domestic prices approached all-time highs, further dampening demand,” Kothari said.

Gold recycling and imports

Indian jewellers have also reported increased gold recycling as buyers exchange existing jewellery rather than purchasing new pieces, according to Kothari. 

Kumar Jain, the owner of Umedmal Tilokchand Zaveri stores in Mumbai told Invezz that recycling of old jewellery is currently higher as there is a shortage in stocks with jewellers. 

The shortage was due to a decline in imports of gold. India is one of the top importers of the yellow metal. 

Gold imports in January saw a noteworthy drop owing to high prices leading the pull-back in demand, according to WGC. 

Anecdotal market reports suggest that manufacturers did not pick-up imports, reflecting the depressed demand environment. 

January's imports were the lowest since July 2024.

According to Ministry of Commerce data, the gold import bill for the month totalled $2.68 billion, a 43% decrease compared to December. 

However, it was approximately 40% higher than January of the previous year. 

“We estimate that the volume of imports in January ranged between 30 tons-35 tons,” Chacko said.

Gold ETFs and investments

Higher gold prices are prompting a shift from jewellery purchases to investment-based gold products, Kothari said. 

“Many consumers are hesitant to buy expensive jewellery and are instead opting for gold ETFs, digital gold, and gold mutual funds as alternative investments.”

He added:

According to the Association of Mutual Funds in India (AMFI), gold ETFs recorded net inflows of 37.5 billion rupees ($435 million) in January, significantly higher than the average inflows of 9.4 billion rupees ($112 million) over the previous 12 months. 

In the meantime, Kothari expects retail prices to remain firm with limited relief unless global prices correct sharply.