India's festival-time gold obsession hasn't lit up in 2022

Persistently high inflation has dampened the demand for gold this year.
India's festival-time gold obsession hasn't lit up in 2022
Photo: Sivaram V (Reuters)
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The demand for gold, especially in festival season, has been lukewarm among Indians in 2022.

There is little chance this year of the kind of rush at jewellery stores as seen in 2021 after two bleak pandemic years, Bloomberg reported yesterday (Oct. 18), citing the World Gold Council.

India’s peak demand season for gold jewellery, coins, and bars typically lies in the October-December period when festivals like Diwali and Dussehra are followed by thousands of weddings.

A persistent rise in consumer prices, however, has eroded household purchasing power and dragged down demand this year.

“We will definitely see better demand than the first half of the year, but it is not going to be as good as it was last year,” PR Somasundaram, regional chief executive officer at the London-based World Gold Council, told Bloomberg.

India’s gold demand could be as high as 750 tons in 2022, less than last year’s 800 tons, according to Somasundaram.

In any case, Indians, especially those of the younger generation, have shown an increasing inclination towards digital gold instead of physical gold.

Silver is seen as an alternative to gold

In 2022, several fund houses have come up with silver exchange-traded funds (ETF), while gold ETF has been around for more than a decade.

Earlier, silver was not easily accessible. But silver ETFs have made the metal available to small investors, with an investment requirement of as little as 60 rupees ($0.73)—one unit of an ETF trades at less than Rs60.

“The strong dollar has pushed silver prices down along with other commodities. Fears of an economic slowdown are already discounted in silver prices. As the gold-silver ratio indicates relatively cheaper silver, it is attractive to buy silver at current prices,” Manish Banthia, senior fund manager for fixed income, at ICICI Prudential Mutual Fund told Moneycontrol.

While gold has limited usage, silver is also an industrial metal. With the demand for smartphones, electronic gadgets, and electric cars expected to rise, experts believe that the demand for silver will also grow and make a perfect scenario for silver prices to advance in the coming months.

Analysts, however, suggest riding out economic uncertainties and dynamic business cycles would be easier with a mix of gold and silver in the portfolio.