Experts analyse surge in old jewellery sales driven by rising gold prices

Speaking to CNBC-TV18, PR Somasundaram, Regional CEO India at World Gold Council, expressed his opinion on sovereign gold bonds, stating, “Based on the success of past issuances, I believe that sovereign gold bonds are one of the most favorable investment options in the gold market. They offer a return of 2.50 percent and tax-exempt upside potential on gold. However, I am not convinced that they are leading to a decline in physical gold purchases. They likely to attract individuals who are otherwise uninterested in gold or undecided. I don't believe they are converting physical buyers into investment holders."

Somasundaram further added, “The sudden price surge has significantly impacted consumers, and I don't think savings have increased to the same extent. Consequently, we continue to observe a softening trend in the second quarter. Internally, we have discussed the possibility of an upturn in the fourth quarter if a good monsoon follows, but this is contingent on price behavior. A substantial decrease in prices could trigger a significant increase in demand, similar to what we witnessed in 2021. Otherwise, due to the rapid price escalation, we may experience reduced demand this year.”

Ashish Pethe, representing Waman Hari Pethe Jewellers, explained the consumer psyche regarding gold price movements. He stated, “Consumer behavior is intricately linked to the pace and magnitude of price fluctuations. Whenever we observe a substantial rise in a short period, retail customers tend to either sell their existing holdings or adopt a wait-and-see approach for prices to stabilize. Presently, with gold reaching Rs 60,000, consumers are gradually accepting the price. I anticipate a resurgence in buying during the upcoming season.”

Overall, the current trend in India involves individuals capitalising on high gold prices by exchanging their old jewelry. While the demand for gold has experienced a dip, the introduction of sovereign gold bonds provides an alternative investment avenue.