Why India’s Diwali gold rush is different this year

Ahead of the Hindu festival of Diwali, the jewelery market in the bustling Lajpat Nagar district of the Indian capital Delhi is bustling with crowds.

Shops stay open even on holidays, and at dusk dozens of cars line the streets as a series of glittering signs lure shoppers into the flower-decorated shops.

Rising gold prices – which have topped $1,440 (£1,081) for 10 grams – may have slightly dampened demand for jewelery in the world’s second-largest market for the yellow metal this year, but Indians are not yet ready to give up their penchant for gold entirely.

Diwali, along with Dhanteras – a smaller festival that falls on a Saturday this year – are believed to be auspicious occasions for buying the precious metal, with hundreds of thousands of Indians flocking to markets to buy gold and silver coins, bars and jewelery believed to bring wealth and good luck.

The skyrocketing prices have created FOMO – or the fear of missing out – in the minds of shoppers who worry that prices may rise further, Prakash Pahlajani, who runs family business Kumar Jewels, told the BBC on a busy evening at his store.

“As a result, I have more customers this year,” Mr. Pahlajani said.

But with prices – gold up 60% and silver up 70% – jumping through the roof, jewelers are having to change their approach to counter stagnant customer budgets.

“People don’t say ‘I don’t want to buy.’ Instead, they say ‘I’ll buy a little less,” said Tanishk Gupta, another jeweler down the road from Mr. Pahlajani’s shop.

He said he had to be innovative and design pieces that looked sophisticated but had a reduced amount of gold in them. A coin made of 250mg of gold, which he sells for just $35, is now thinner but made to look as big as the heavier ones.

Coins weighing one-tenth of that, 25mg, are also on the market.

Pushpinder Chauhan, another retailer in the area, said higher prices have also fueled a growing preference for lighter jewelery this year, “especially among younger shoppers” who want pieces for everyday wear, not just for special occasions.

Several jewelers the BBC spoke to pointed to another clear trend – more customers are buying gold and silver for investment rather than jewelery this year, something also reflected in bullion market data.

Although gold jewelery continues to account for the largest share of total gold demand in India, the proportion driven by investment – mostly bullion and coins – has been growing steadily, according to the World Gold Council (WGC).

“Jewellery’s share fell to 64% in the second quarter of this year from 80% in the same period in 2023, while investment demand increased from 19% to 35% over the same period,” Kavita Chacko, the council’s head of research, told the BBC.

Much of this demand is also fueled by investments in exchange-traded funds (ETFs) or digital gold, where September saw record inflows.

ETF assets under management are up more than 70% this year.

Apart from retail demand, gold prices are also heavily influenced by India’s central bank, with the metal’s share of its foreign reserves rising from 9% to 14% in 2025, according to the WGC.

Indeed, the Reserve Bank of India (RBI) has been “a mainstay of global gold demand over the past three years,” said Kainath Chainwala, who tracks commodities at Kotak Securities, a brokerage.

She said the RBI is hoarding gold in a bid to diversify its foreign exchange holdings, reduce its dependence on the dollar and provide stability during geopolitical stress.

Going forward, with the festive and wedding season upon us, retail demand for gold and silver is expected to continue to hold despite record high prices, experts say.

“The affluent classes will continue to buy, even though it is a drag on lower-income families,” said Madan Sabnavis, chief economist at state-run Bank of Baroda. “Demand will hold in value terms, although volumes will decline.”

But some families are completely thrown out of the market.

“Now I have to think a lot when I’m buying – should I buy anything at all,” Bhavna, who is getting married in February, told the BBC outside Mr Pahlajani’s jewelery shop.

For now, she has put her shopping on hold and is waiting for prices to drop a bit so she can return to finish her wedding shopping.

Such a strong cultural affinity for physical gold, especially for jewelry, means appetite for the precious metal is unlikely to be reduced in the long term, despite short-term moderation, experts say.

That’s especially true in a country where large gold reserves deliver solid long-term returns, making many Indians rich at a time when growth is faltering and jobs are hard to come by.

According to US investment bank Morgan Stanley, Indian households held a staggering $3.8 trillion in gold, equivalent to 88.8% of the country’s GDP.

“This suggests a positive effect on household balance sheets given the upward trend in gold prices,” economists Upasana Chahra and Bani Gambhir wrote in a recent note, adding that Indian families also benefited from “cyclical factors of lower interest payments with monetary easing and the positive impact on disposable income through direct and indirect tax cuts.”

That’s not a bad start to the holiday season, although record prices may have taken some of the shine off the precious metal.

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