Gold prices have maintained their strong position, trading near $2,623.00 an ounce, just shy of the recent record high of $2,674.00. The precious metal's resilience comes amidst a confluence of economic data and geopolitical factors that continue to shape market sentiment.

Bullish Outlook and Price Projections

JM Financial's Rahul Sharma forecasts that gold prices could extend by another 10% from current levels, though he warns of a high likelihood for price or time correction afterward. Sharma notes:

• Gold is extremely overbought on monthly charts with RSI above 88
• Prices have surged 98.84% over the past 23 months
• Expectations of modest gains or range-bound movement in the near future
• Potential for stronger upside later, with prices possibly testing $4,000

Central Bank Purchases and Global Reserves

Central banks are expected to purchase around 900 tonnes of gold, significantly above the pre-2022 average of 500-600 tonnes. Key buyers include China, India, Poland, and Turkey. Global reserves now stand at approximately 36,200 tonnes, representing 20% of total reserves.

ETF Inflows and Market Drivers

Gold ETFs have recorded significant inflows:

• 397 tonnes of inflows in recent months
• Total holdings reached 3,616 tonnes
• Driven by geopolitics, U.S. policy risks, and inflation fears
• Chinese ETF holdings increased 70% year-to-date

Economic Indicators and Fed Policy

• Fed funds rate: 4.25-4.50%
• Markets expecting approximately 50 basis points of cuts
• U.S. CPI: 2.9%
• Potential for tariffs or supply shocks to push inflation above 5%

Geopolitical Tensions and Market Uncertainty

The gold market has also found support from ongoing geopolitical tensions, including:

• Israel's military strike against Hamas leaders in Doha
• President Trump's statements regarding potential tariffs on India and China

These events have contributed to the overall uncertainty in global markets, typically a favorable condition for gold as a safe-haven asset.

Market Outlook

The bullish sentiment for gold remains strong, supported by various factors:

• Continued geopolitical tensions
• Expectations of a more dovish Federal Reserve stance
• Potential weakening of the US dollar

As markets await upcoming US inflation data and the Federal Reserve's decision, gold's performance continues to captivate investors and analysts. The interplay of economic indicators, geopolitical events, and monetary policy expectations will likely remain key drivers for the precious metal's price in the near term.

India's gold market is experiencing a complex scenario, with prices soaring to unprecedented levels while demand during the festive season sees a significant decline. This trend is mirrored in the global market, where gold prices have reached approximately $3,475.00 per ounce, approaching all-time highs.

Record-Breaking Prices

Gold October futures on MCX reached an all-time high of Rs 1,09,000.00 per 10 grams, driven by expectations of 75 basis points rate cuts by the US Fed. International spot gold also hit a record high of $3,646.53 per ounce. The rally was fueled by disappointing US job data showing only 22,000 non-farm jobs added versus 75,000 expected, and unemployment rising to 4.30%.

Global Demand Trends

Global gold jewellery demand fell 14% year-on-year in Q2 to near-pandemic lows. This decline is attributed to record investment inflows, a weaker US dollar, and investor preference for safe-haven assets. Gold-backed ETFs recorded net inflows exceeding 400 tonnes in the first half of the year, and central banks added 166 tonnes to reserves.

Festive Season Demand Decline in India

The price surge has had a profound impact on India's gold market during the first leg of the festive season, spanning from Raksha Bandhan to Onam. The India Bullion & Jewellers Association reported a 28% drop in gold demand to 50 tonnes, marking the steepest fall in three years.

Price Surge Impacts Buying Patterns

The primary factor behind this downturn is the substantial year-on-year price increase of 49%. Gold prices surged to Rs 1,07,321.00 per 10 grams, compared to last year's Onam price of Rs 74,500.00. This dramatic price hike has led to notable changes in consumer behavior:

• Shift towards lower karatage options
• Preference for lightweight jewelry
• Reduced average purchase grammage

Adapting to Market Changes

Retailers and consumers alike are adapting to the new market dynamics:

1. Grammage Reduction: The average purchase grammage has decreased from 7-12 grams to 7-10 grams.
2. Karatage Preferences: Lower karatage options such as 18K, 14K, and 9K gold have gained popularity.
3. Lightweight Jewelry Boom: Sales of lighter-weight jewelry have grown 2.5 times compared to the previous year.

Mixed Results for Retailers

The impact of these changes varies among retailers:

Investment Concerns and Alternatives

Chartered accountant Nitin Kaushik has highlighted drawbacks of investing in gold jewellery, stating it could take 5-7 years just to break even. He explained that 24K gold (99.9% pure) qualifies as investment grade, while 22K gold contains only 91.6% gold. A 22K ornament worth Rs 50,000 contains approximately Rs 45,800 worth of actual gold.

Hidden costs include:

• Making charges ranging from 10-25%
• 3% GST
• Jewellers buying back ornaments below market rates

Kaushik presented data showing 10 grams of 24K gold increased from Rs 6,307 to Rs 78,245, delivering 13-14% CAGR. He recommended 24K bars, gold ETFs, gold SIPs and sovereign gold bonds as better investment alternatives.

Market Outlook and Price Projections

Despite the overall decline in jewelry demand, the market for gold coins, often purchased as investments, has remained stable. In India, investors are selling old gold jewellery to book profits with plans to repurchase if prices decline. The country expanded hallmarking standards to include 9-carat jewellery to provide more affordable options.

Silver has also seen significant movement, surging to $40.00 per ounce, its highest level in 13 years. This increase is driven by both investment and industrial demand from solar panels, electronics, and electric vehicles. Silver-backed ETFs saw record inflows of 95 million ounces in the first half of the year.

Axis MF Research projects gold prices to remain between $3,400.00-$3,600.00 per ounce and silver between $40.00-$42.00 per ounce for the remainder of the year. Analysts expect continued volatility with gold trading between $3,510.00-3,770.00 per ounce and silver between $39.10-44.00 per ounce.

Conclusion

As the festive season progresses, the gold industry faces a challenging landscape as it navigates through high prices, changing consumer preferences, and investment concerns. The shift towards lower karatage and lightweight options indicates consumers' attempts to balance their desire for gold with budget constraints. With India being the second-largest gold consumer globally, holding over 25,000 tonnes in household possession, it remains to be seen how these trends will evolve and whether the industry can find innovative ways to stimulate demand in this high-price environment.