While gold prices have fallen sharply from their peak to make jewellery more affordable, retail demand will only pick up once prices stabilize, according to experts. “Customers do not buy in a falling market. Instead, they buy when prices are high. When prices are falling, the customer waits for prices to fall even more before buying,” said Rajubhai Solanki, who owns Zaveri Kapoorchand Lalchand, a jewellery store in Zaveri Bazaar.

Thus, while high prices were a concern a few months ago, a rapid decline in prices within a short period is not good for the industry either. “These (jewelleries) are not must-buy things. It’s either functional or for investment purposes. Investors will definitely look for a best-buy opportunity. While prices have steadied in the last week or so, it needs to remain stable for a longer period,” he added.

While retail demand remains slow for now, some experts said buying has picked up on the industry level, especially after domestic prices fell under the psychologically crucial Rs 1.5 lakh per 10 gram mark. “We saw some demand come back to the market. So from our conversations (with channels of dealers), we understand buying is picking up. When I say buying is picking up, it could also mean at the B2B level, where people have started to build inventory,” said Harshal Barot, lead consultant at Metals Focus.

Shifting demand, festive hopes

For now, little has changed for smaller retailers in the jewellery hub since The Indian Express visited the area in February, when gold prices were at their peak.

“In our business, the making charge is fixed. So, if I take Rs 1,500 making charges and my cost falls to Rs 13,000 from Rs 15,000 as gold falls, then margins will definitely improve. That has happened in the existing business we have, but sales (volumes) have not improved due to volatile prices,” a jeweller explained.

While gold jewellery has historically dominated sales for these jewellers, demand has increasingly shifted towards lower-carat jewellery, studded designs and gold exchange. The trend first emerged among larger listed retailers earlier this year as record-high gold prices made jewellery less affordable for many consumers.

However, if gold prices stabilize around current levels, demand is expected to pick up during the festive and wedding season, which runs from October to February. That would mark a sharp contrast with last year’s festive season, when record-high gold prices dampened demand.

“I have been looking to get a pair of gold earrings. I had deferred purchasing them earlier when I had a couple of weddings since it was out of my budget. But now that it’s just about in my budget, I’d maybe wait a bit more and buy them for Diwali,” said Roshni, a 25-year-old management professional based in Mumbai.

Global factors drive gold prices lower

After hitting a peak of around Rs 2.04 lakh/10 g in January, the August expiry contracts of the precious metal have dropped around 30% to around Rs 1.43 lakh, according to data on the Multi Commodity Exchange of India. Spot prices have dropped 17% to around Rs 1.40 lakh, the World Gold Council data showed.

The fall is in line with international prices, which have dropped due to factors such as a strong US dollar amid expectations of Federal Reserve rate hikes, as well as a slowdown in gold purchases by most central banks amid the West Asia war.

The Fed adopted a more hawkish stance at its latest monetary policy meeting last month, indicating at least one hike this year. Higher interest rates are negative for gold as it provides investors with more attractive interest-bearing investments, leading them to shift away from the precious metal to fixed-income assets.

In fact, the pass-through of falling international gold prices to the Indian market is limited due to high import duties, with the government hiking duty on gold imports to 15% (including basic customs duty and agriculture infrastructure development cess) from 6% in May. The spot price for the metal has fallen around 28% from its peak to $4,000 an ounce in the international market, a much sharper decline than in domestic spot prices.

Austerity call hits market; steady prices key for demand

Domestic gold prices were also hit by Prime Minister Narendra Modi’s austerity call in early May, which urged citizens to avoid non-essential gold purchases to ease pressure on forex reserves amid the crisis. “When Modiji had made the (austerity) announcement, the impact on the market was immediate. Sales went down drastically,” said Rajesh Rokde, chairman of the All India Gem and Jewellery Domestic Council.

Following these events, the country’s gold imports stood at $3.4 billion, representing a 34% rise year-on-year but down 39% from the previous month, according to data from the Ministry of Commerce.

“However, demand has slowly started building up. Consumers will look at this drop as an opportunity to buy,” according to Rokde. “The perception now is that gold is at a comfortable level, which is good for the Indian market,” he added.

Thus, while a sharp correction in gold prices hasn’t yet led to a pickup in retail demand for jewellers, experts remain confident of conditions improving once prices stabilize at around current levels. However, stability in prices remains key.