Cooling gold prices: What it means for you

There are three major options for taking exposure to gold–jewellery stocks, gold exchange traded funds (ETF) and multi-asset allocation funds. Experts, however, suggest that the best way to play gold at this juncture is through multi-asset funds with prudent allocations to the yellow metal.

“An outright direct exposure to gold through ETFs or physical holdings may not be advisable at current levels," Taher Badshah, chief investment officer at Invesco Asset Management (India), told Mint. “Yet, one should also be aware of under-allocation as the trend (for gold) is still upwards. Funds with 15-20% gold exposure are the sweet spot right now."

Pankaj Pandey, head of retail research at ICICI Securities, said the firm would suggest only 5% exposure to gold in multi-asset funds against 15% earlier. “Notably, during the last leg of (gold) correction, rupee’s depreciation prevented domestic (gold) prices from coming down. However, we don’t expect any similar rupee depreciation this time," Pandey said.

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As for gold ETFs, Invesco’s Badshah believes that investors should look at them only if there are sharp corrections in gold prices. But he is not too excited about jewellery stocks. “I would wait for another quarter or so," he said. “Either their valuations correct sharply, or else I’m in no rush to buy jewellery stocks."

Major jewellery stocks are trading above their thee-year median valuations right now.

Investment to adornment

Stable gold prices would be a boon for domestic jewellery shoppers though, according to Aksha Kamboj, vice president of India Bullion and Jewellers Association (IBJA). “If gold prices remain stable over the next few months, we can expect a stronger uptick in consumer buying, particularly during the upcoming festive and wedding season."

Lower and stable gold prices encourage consumer purchase of big-ticket items, especially bridal and investment jewellery. This translates into higher volumes for jewellery makers. Devarsh Vakil, head of prime research at HDFC Securities, expects a moderate jewellery volume recovery–mid to high-single digits– in Q1FY26.

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Stable prices would meaningfully benefit the entry-level tier 2 and tier 3 customers who are more price sensitive and see gold as a traditional investment vehicle, Vakhil noted. The sub- ₹50,000 jewellery category, a psychological sweet spot for middle-income customers, has been languishing for several quarters now.

High gold prices hurt jewellery demand. Titan Co., owner of Tanishq and a bellwether for consumer sentiment, reported subdued demand in the quarter ended March, which impacted its volume growth. Its jewellery business revenue grew 20% on-year, mainly on the back of 30-40% higher gold prices.

But their dizzying April peak of ₹1,00,000 per 10 grams, retail gold prices have fallen 5%. Industry experts now predict a more comfortable price, hovering around the ₹93,000–96,000 mark. Jewellers have been waiting for the prices to cool. IBJA’s Kamboj says any further price correction may bolster demand for studded jewelleries, the real money spinners for jewellery makers.

Since gems are relatively cheaper to gold, studded jewelleries have higher profit margins as the content of gold there is lower than pure gold products. Hence, gold is the key cost driver in the studded segment particularly in the mass-affluent category.

Yet, even this high-margin category hasn't been immune to demand slump. Elevated gold prices have resulted in subdued demand for studded products as well, resulting in inferior product mixes for jewellery makers so far. Falling gold prices from here on would improve customers’ perceived value of the product and increase the profitability of jewellery companies, Kamboj said.

 Vakhil from HDFC Securities said, “The high-margin nature of this category means even modest volume gains can significantly aid profitability."

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However, jewellery demand has been muted so far in Q1 and experts are cautious of a substantial recovery. Increasing competition has also added to margin woes for organized retailers as they continue to invest in marketing and promotions, said Vakhil.

Bullish pause

Moreover, this recent cooling appears to be a mere pause. UBS anticipates gold prices to consolidate at current levels over the next three months.

International gold prices are likely to touch $3,500 per oz by the end of 2025 as weak global economic growth and fragile cross-border relationships would continue to fuel safe-haven demand for gold, it said in a report. Ongoing central bank and sovereign wealth fund buying and lower aggregate investor exposure relative to the peak seen in 2012-2013 will further support gold prices, UBS noted.

Experts believe that the precious metal has more room to rise as the combination of persistent geopolitical instability and uneven trade signals continues to underpin gold’s longer-term appeal.