Gold Hits ₹1.25 Lakh: Is the Wedding Rush Driving Rates?

On Nov 25, gold prices in India witnessed a considerable jump across domestic markets. Robust global demand coupled with the global monetary policy expectations pushed the prices up. With surging prices, gold is weighing heavier on the pockets of Indian consumers during the ongoing wedding season.

In Kolkata, the price for 24-carat gold touched ₹1,25,340 per 10 grams. Similarly, New Delhi saw rates at ₹1,25,290. Mumbai was close behind at ₹1,25,470. The southern metros were not far behind, with Chennai recording ₹1,25,790 and Bengaluru at ₹1,25,590.

The futures market sentiment was equally bullish. MCX Gold Dec futures rose 0.85% to ₹1,24,907. Also, Silver contracts zoomed 1.33% to ₹1,56,543 per kg. This has led to the market buzzing with gold prices rising around 1500% in twenty years.

So, with prices hitting these historic levels, there is an important question for every family planning a wedding. Have the gold prices spiked temporarily? Or is the price rise the new normal for the Indian bullion market?

What is Driving the Rally?

The bustling jewellery markets of Mumbai and Delhi might suggest that the wedding season is the main driver. However, the global financial markets could be the real accelerator.

The global financial markets are currently pricing in a high probability of a rate cut by the US Federal Reserve. This sentiment has historically acted as rocket fuel for bullion.

Investors shifted towards safe-haven assets. Thus, the international gold prices rose considerably in the previous session. The dovish (non-aggressive) comments from Fed policymakers had catalysed this shift.

There is a clear economic logic behind gold being more attractive than the dollar or treasuries. Gold is a non-yielding asset, and it does not pay interest or dividends. In a high-interest-rate environment, investors are preferring bonds or savings that can offer a steady return. But when interest rates are expected to fall, the "opportunity cost" of holding gold can decrease.

Simultaneously, the Indian gold demand during weddings is largely price-inelastic (changes with price). But families will buy gold regardless of the price because it is a cultural necessity.

The cultural factor has created a high floor for prices. Also, the factor has ensured that even if global cues soften, local demand will keep the rates elevated.

Still a Safe Haven?

The gold price surge has underscored its role as a hedge against inflation and currency depreciation. Despite a relatively firm US Dollar, usually making gold costlier and decreasing demand, the bullion prices are edging up even today.

Thus, the market is worried about the underlying health of the US labour market and is seeking safety.

Aksha Kamboj, Vice President of the IBJA (India Bullion and Jewellers Association), has suggested that in the current context, gold has remained a "strong portfolio anchor."

With such historical alpha, can gold remain a growth asset for the next decade? Or, has gold purely become a defensive play against economic uncertainty?

Investors’ Contemplating Choices

The buying decision can be difficult for the retail buyer in major Indian cities due to higher gold prices.

Retail prices are likely to remain higher than the headline rates. Moreover, jewellers add making charges, taxes, and GST to the final bill.

The current rally is supported by "healthy spot demand." Meaning, people are buying despite the high prices.

However, analysts have advised caution. The market is currently waiting for a pile of economic data from the US (like retail sales, jobless claims, and producer price figures). If the data is stronger than expected, the Fed might hold rates steady. Thus, there can be a short-term correction in gold prices.

Conversely, if the data is weak, it will validate the rate-cut narrative, potentially pushing gold to fresh highs. To conclude, the domestic fundamentals seem favourable, but global volatility is the wildcard.

Sources

Livemint
Livemint 1