India's Biggest Jewelers Sit Out Diwali Purchases, Betting on Cheaper Gold

India ranks second among the world's gold consumers, and its buying usually peaks from October through December. This year, the country's biggest jewelers are bucking the pattern and waiting for cheaper prices.

On Wednesday, gold was changing hands at $4,044.65, a 3.26% decline from a month earlier, Trading Economics figures show. Since India and China together absorb roughly half of global gold demand, a weak Indian buying season strips away support in one of the two largest markets for the metal.

What Is Behind the Hesitation of India's Largest Jewelers This Festive Season?

Demand is now concentrated among small and mid-sized jewelers, according to Samit Guha, chief executive of refiner MMTC-PAMP India.

Guha noted that the big houses deplete their inventories whenever they anticipate another price decline, then resume buying once the rebound begins.

"If gold rebounds, we will see buying," he added.

That wariness is now affecting India's peak season, which revolves around Diwali, the Hindu festival of lights, on November 8.

The import duty India applies, raised to 15% in May, has also redirected some buying into cash markets.

Citi Research projects October-December imports at about 106 tons, roughly half the usual figure, and points to stricter import rules and softer rural demand as reasons.

Chinese households have taken the opposite path, buying more as prices fell.

Is Gold's $4,000 Line Strong Enough to Lure Indian Buyers Back?

Part of that void had been filled by investment money. Gold exchange-traded funds (ETFs) took in a record $31 billion in the third quarter, according to the World Gold Council.

That source of support is weakening: ETF investors pulled close to 17 tons out over three trading sessions, as Bloomberg noted.

For Ole Hansen, a Saxo Bank strategist, the key support level sits at $3,970. In his view, only a sustained move through $4,230 would force short sellers to cover.

Amundi, the biggest asset manager in Europe, continues to anticipate a recovery toward $4,500 but has stopped expecting $5,000 before the end of the year.

Benjamin Cowen, an analyst, is looking for the Federal Reserve (Fed) to lift rates in December in a move that mirrors 2018. Gold's low point, he said, might not come until January 2027.

According to Cowen, markets assign roughly a 90% probability to the Fed standing pat on Wednesday. Amundi added that a December increase is largely priced in.

With little in the way of a Fed surprise expected, gold's next move may rest on when India's large jewelers come back to the market.