More glitter in Gold after 32% gain in Samvat 2080, highest after 2011

Consequent to high gold prices, the domestic jewellery industry also faced many challenges during the recently concluded Samvat

Samvat 2080 was the best year for gold and silver, with the two precious metals delivering 32 per cent and 39 per cent, respectively, despite a 9 percentage point (900 bps) reduction in import duty, which led to a 9 per cent fall in domestic gold prices shortly after the announcement. These returns are the highest after Samvat 2067.

 

The previous notable year was 2011, corresponding to Samvat 2067, when gold returned 36 per cent and silver 40 per cent. The year 2011 was the time when gold prices surged above $2,000 per ounce, and silver prices peaked at $49 per kilogram. During that time, Indian precious metals also experienced a significant jump.

 

The price gains in Samvat 2080, which ended on Thursday, can be attributed to three key global factors.

 

World Gold Council (WGC) in its latest September quarter report on gold demand trends stated that gold prices continued to climb following geopolitical uncertainty, stemming from both an escalation in Middle East tensions and the highly polarised US presidential election. The shift in global interest rate policy also supported the gold rally. 

 

Consequent to high gold prices, the domestic jewellery industry also faced many challenges during the just-concluded Samvat.

 

Varghese Alukkas, managing director, Jos Alukkas, said: “This season, the Indian jewellery industry primarily faced challenges due to significantly high gold prices, increased competition from online retailers, and concerns about potential economic uncertainties, leading to a cautious consumer approach towards expensive jewellery purchases compared to last year.”

 

Gold prices have risen by 60 per cent in the last two Samvat years, which changed the way consumers buy jewellery. Varghese said that the sharp rise in gold prices discouraged consumers from buying gold jewellery, especially larger pieces, and pushed them towards prioritising essential needs over luxury jewellery. Many consumers are opting for lightweight jewellery, which affected volumes compared to last year's Diwali, he added.

 

When prices surpassed Rs 70,000 per 10 grams in the last week of July 2024, the government announced a reduction in import duties, leading to a 9 per cent drop in gold and silver prices. Demand surged shortly after, resulting in gold imports increasing to 360 tonnes in the three months ending in September.

 

Another notable development during Samvat 2080 was the maturity of India's first Sovereign Gold Bond (SGB) issue and the return it delivered, which meant several implications. SGBs issued in 2015-16 and held till maturity have delivered almost 14 per cent tax-free returns, which is double the cost of fundraising by the government. In the last eight years, 140 tonnes worth of SGBs were sold by the government at different price levels.

 

Original intention of the government was to divert physical gold investors to SGBs, but there was no proof that SGB buyers are mostly those who otherwise would have purchased bars and coins. In the current financial year (FY25), despite the provision to raise funds via SGBs, not a single issue has come so far.

 

Chirag Sheth, principal consultant, London-based metal consultancy Metal Focus, however, noted that the duty cut leading to the gold rally has helped a surge in investment demand. After over a decade, such a strong revival in gold investment demand has been seen, said Chirag. Gold bars and coins equivalent to about 76.7 tonnes were sold in the September quarter, according to WGC data.

 

The import duty cut also reduced unofficial gold imports. This single decision could significantly transform the Indian bullion market, paving the way for more transparent trading practices. Sheth said, "The sharp cut in import duty has made smuggling unviable. However, this will favour organised players more than unorganised ones because of improved transparency.”

 

The moot question now is that after the stellar returns over the past two years, will gold price continue to rally?

 

Nigam Arora, a US-based investment consultant and author of the Arora report, said: “The course of gold will depend on the US election. It depends not only on who will become the President when results are out next week, but also on if there is a sweep of the House and the Senate by one party. Here is an important point for investors. The recent leg-up in gold occurred after a very long technical base. This tells us that if there is a pullback in gold, investors should consider buying on the pullback.”

 

Overall, the tone remains bullish, except for a possible small correction.

 

On consumer demand front, Varghese said: “Consumers are seeking a simple, liquid and culturally significant investment nowadays, so gold remains a strong option. With global uncertainties and ongoing conflicts, gold prices are expected to rise, making it a wise choice for long-term value and the best investment option as well. At Jos Alukkas, we continuously adopt designs and incorporate new trends to appeal to evolving consumer tastes. Wedding purchases are around the corner; we are very confident that the jewellery industry will keep shining in the last quarter as well.”