Indians spend up to $11 billion on gold this Diwali

The narrow lanes of Zaveri Bazar, one of the oldest jewelers’ markets in Mumbai, India’s financial capital, were even busier this Diwali as crowds flocked to buy gold on the first day of the festival of lights.

But there was a twist.

Mahavir Kothari, a precious metals wholesaler at Zaveri Bazar, told CNBC that the market was thronged to buy gold coins or bars — not jewelry.

India’s leading gems and jewelery trading houses told CNBC that more than 40 tonnes of gold were sold in the country on October 19, the first day of Diwali.

About 700 billion rupees ($8 billion) to 1 trillion rupees ($11 billion) worth of gold was sold during the five-day festival that ended Thursday, according to the India Bullion and Jewelers Association, or IBJA, and the All India Gem and Jewelery Domestic Council, or GJC.

Ajay Chawla, CEO of Tanishq, one of India’s largest jewelery chains, According to reports He warned that his company could run out of gold coins and bars due to demand during the festive season.

A few years ago, only one in 10 consumers would opt for a coin or gold bar, said IBJA national secretary Surendra Mehta, but this is slowly changing. He added that according to his trade body’s estimates, jewelery sales this festive season have declined by around 30% compared to last year.

The excitement among Indians about buying gold for investment is rooted in their search for returns. Gold was up 66% this year through mid-October, before seeing a sharp slide — it was still up 55% as of Monday. Earlier this month, gold prices crossed $4,000 per ounce Industry experts The yellow metal is predicted to touch $5,000 in 2026.

According to data from the World Gold Council, India is the second largest buyer of gold after China, which shows that it has been a consistent buyer over the years due to traditional demand for gold during the festival (October) and wedding seasons (October to mid-January and April to May).

As global central banks ramp up their gold purchases, driving up prices, the yellow metal is increasingly attracting retail investors who fear missing out on the boom.

Goldman Sachs said in a Sept. 30 report that central banks, especially in emerging markets, have increased the pace of gold purchases fivefold from 2022 after Russia’s foreign exchange reserves were frozen following its invasion of Ukraine.

“We see this as a structural change in reserve management behavior and we do not expect a change in the near term,” the report said.

This sharp rise in gold prices is forcing Indians to look at gold not just as a consumption product, but as a prime investment asset, experts said.

Earlier, when gold demand was fueled by high consumption and jewelery prices rose, consumers would cut back on spending, said Anindya Banerjee, head of commodity and currency markets at Kotak Securities. But rising prices have not curbed the overall demand for gold this festive season.

Rajesh Rokde, chairman of GJC, said volume-wise sales for all five days of Diwali were only 5% lower than last year, though prices remained high.

Gold It is currently trading at $4,073 per ounce.

Morgan Stanley Oct. A report on the 9th said, “Household wealth held in gold in India stands at $3.8tn/ 88.8% of GDP. “This is providing a positive wealth effect, although mild macro stability ensures that gold demand flows remain moderate.”

Gold is a good hedge against a falling rupee and any weakness in Indian equity markets, said Mukesh Jindal, senior partner at wealth management firm Alpha Capital, which handles more than 100 billion rupees in assets for family offices and high net worth individuals in India.

Investments include gold bars, coins, exchange traded funds and even buying Digital gold. According to data from the Association of Mutual Funds in India, in September, gold ETFs rose six-fold (Rs 83.63 billion) from a year ago.

With central banks around the world remaining net buyers of the metal every month, gold is likely to remain bullish, Jindal said, adding that he is advising clients to allocate 5%-10% of their portfolios to gold. That’s still conservative compared to the advice of Bridgewater Associates founder and billionaire Ray Dalio earlier this month to allocate 15% of one’s portfolio to gold.