Record Gold Price Poses Obstacle for Indian Wedding Traditions

Gold as a cultural and financial cornerstone

Gold has long been an integral part of Indian culture, serving as a financial safety net in a country where formal retirement savings are limited. Families view gold as a stable asset, and households across India collectively hold approximately 25,000 metric tons of gold, making them the largest private gold holders in the world.

Unlike western economies, where retirement planning typically involves stocks, bonds and pension funds, many Indians — especially in rural areas — rely on gold as a long-term investment.

The metal is commonly purchased in small increments over time, often through trusted local jewelers.

These jewelers play a crucial role in the ecosystem, not only selling gold, but also offering buyback options and loans against gold holdings when customers face financial hardship.

Gold’s significance extends beyond investment, forming a key part of wedding traditions. Families often spend a significant portion of their savings on gold jewelry for brides, symbolizing wealth and security.

Despite a ban on dowries, wedding gold gifts remain a widely accepted custom. The ongoing price surge, however, is reshaping these traditions, with families opting for lighter jewelry or deferring purchases altogether.

The silver surge and jeweler challenges

As the gold price climbs, silver has become an increasingly attractive alternative for some investors. India’s silver imports surged by 37 percent year-on-year in January, reaching the highest level since 2008.

Market participants speculate that silver may soon catch up to gold, prompting increased imports in anticipation of higher valuations. However, recent price increases could dampen further purchases in the coming months.

Meanwhile, Indian jewelers face mounting challenges due to volatile gold lease rates, which have surged by 50 to 100 percent in recent months. Many organized jewelry retailers depend on leased gold, known as gold metal loans, to maintain stock without making outright purchases. However, rising interest rates, a weaker rupee and tight global bullion liquidity have significantly increased leasing costs. While larger jewelers may absorb these costs by optimizing financial strategies, smaller retailers are finding it increasingly difficult to sustain profitability.

With Indian consumers being highly price sensitive, passing on these rising costs remains a challenge. Jewelers are rethinking financial strategies, turning to hedging mechanisms and renegotiating lease terms to manage costs.

Broader economic impact on Indian trade and future outlook

The sharp drop in gold imports is expected to have a ripple effect on India’s trade balance.

Since gold is one of India’s biggest imports, the decline in demand could help narrow the country’s trade deficit, potentially providing some relief to the struggling rupee. However, this benefit comes at the cost of declining revenues for the jewelry industry, which supports millions of livelihoods across the country.

Shifting gold market dynamics are also influencing consumer behavior. In response to high prices, many buyers are turning to gold savings schemes offered by jewelers, where they can accumulate gold over time at fixed rates.

Additionally, there is a growing interest in digital gold investments, which allow consumers to invest in fractional amounts of gold without the burden of physical storage.

Despite the significant challenges faced by the local market, Indian gold demand has shown remarkable resilience.

According to the World Gold Council’s recently released Gold Demand Trends report for 2024, full-year demand in India declined by only 2 percent to 563 metric tons, despite multiple record highs in the gold price.

The report adds that demand surged in late Q3, when consumers rushed to buy gold before prices climbed further, particularly during the Diwali festival and the early wedding season.

However, the onset of an inauspicious period in the Hindu calendar in mid-December tempered purchases toward the end of the year. Analysts expect a gradual recovery in demand from mid-January, contingent on price stability.

Any further price volatility, however, may continue to suppress demand in the short term.