Why India’s Diwali gold rush is different this year

As the Hindu festival of Diwali approaches, the jewelry market in the bustling Lajpat Nagar district of the Indian capital Delhi is teeming with crowds.

Stores remained open even on public holidays, and at dusk, dozens of cars lined the streets as a series of flashy signs lured shoppers into the flower-bedecked stores.

Soaring gold prices – which topped $1,440 (£1,081) per 10g – may have slightly dampened jewelry demand in the world’s second-largest market for the yellow metal this year, but Indians are not yet ready to completely abandon their fondness for gold.

Diwali, as well as Dhanteras – a smaller festival which falls on Saturday this year – are seen as auspicious occasions for buying precious metals, with hundreds of thousands of Indians flocking to markets to buy gold and silver coins, bars and jewelry, which they believe bring wealth and good luck.

Skyrocketing prices have created FOMO – or fear of missing out – in the minds of shoppers, who fear prices will rise even further, Prakash Pahlajani, who runs Kumar Jewels, a family business, told the BBC during 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% – soaring, jewelers are having to change course to counter the stagnation of their customers’ budgets.

“People don’t say, ‘I don’t want to buy.’ Instead, they say, ‘I’ll buy a little less,'” said Tanishq Gupta, another jeweler near Mr. Pahlajani’s shop.

He said he had to be innovative and design pieces that looked elaborate but contained a reduced amount of gold. A coin made of 250 mg of gold, which he sells for just $35, is now thinner but designed to appear as large as heavier coins.

Coins weighing a tenth of that amount, at 25 mg, are also offered on the market.

Pushpinder Chauhan, another retailer in the region, said rising prices had also exacerbated the growing preference for lighter jewelry this year, “especially among younger shoppers” who want pieces for everyday wear and not just for special occasions.

Several jewelers interviewed by the BBC highlighted another clear trend: this year, more customers bought gold and silver for investment purposes rather than jewelry, which is also reflected in gold market data.

While gold jewelry continues to account for the largest share of India’s overall gold demand, the proportion driven by investments – primarily bars and coins – is steadily increasing, according to the World Gold Council (WGC).

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

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

ETF assets under management have jumped more than 70% this year.

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

In fact, the Reserve Bank of India (RBI) has been “a major pillar of global gold demand over the past three years,” said Kaynat Chainwala, who follows commodities at Kotak Securities, a brokerage.

She said the RBI had stockpiled gold with the aim of diversifying its foreign exchange holdings, reducing its dependence on the dollar and ensuring stability in times of geopolitical tensions.

Going forward, as the festive and wedding season is underway, retail demand for gold and silver is likely to continue to be resilient despite record high prices, experts believe.

“The affluent classes will continue to buy, although it will be a setback for lower-income families,” said Madan Sabnavis, chief economist at the State Bank of Baroda. “Demand will hold up in value terms, even if volumes decline.”

But some families have been completely excluded from the market.

“I now have to think a lot before buying, even if I have to buy something,” Bhavna, who will be married in February, told the BBC outside Mr Pahlajani’s jewelry store.

For now, she’s putting off her purchases and waiting for prices to drop a bit so she can come back and finish her wedding shopping.

Such cultural affinity for physical gold, particularly for jewelry, means the appetite for the noble metal is unlikely to be dented in the long term, despite short-term moderation, experts say.

This is especially true for a country where high gold reserves have yielded strong long-term returns, making many Indians rich at a time when growth is stumbling and jobs are hard to find.

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

“This implies a positive wealth effect on household balance sheets, given the upward trend in gold prices,” economists Upasana Chachra and Bani Gambhir wrote in a recent note, adding that Indian families also benefit from “cyclical factors of falling interest payments with the easing of monetary policy, and the positive impact on disposable income from reductions direct and indirect taxes.

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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