Gold, silver trade shows signs of recovery

Sharp fall in rates revives sentiment in a market battered by unprecedented surge

Kolhapur: After reeling under an extraordinary surge in global bullion prices, India’s gold and silver jewellery industry has begun to show early signs of relief, as a sharp correction in prices over the past two days has lifted sentiment in the domestic bullion market.

The earlier rally had pushed the sector into what traders described as a severe economic crisis, wiping out business worth several lakh crore rupees and putting nearly two crore jobs under stress. With prices now cooling, manufacturers, traders and consumers are cautiously returning to the market.

Three-month spiral

The crisis began around the Diwali season and intensified over the next three months. Gold, which was available at around Rs 1 lakh per 10 grams, surged to an unprecedented Rs 1.82 lakh. Silver’s rise was even sharper: from nearly Rs 1.10 lakh per kg to close to Rs 4.20 lakh, a near fourfold increase.

The spike paralysed India’s jewellery manufacturing sector. Production units shut down in large numbers, and lakhs of artisans were pushed into unemployment. Across the country, thousands of traders reportedly faced insolvency, with refund and settlement disputes running into thousands of crores.

The impact was particularly visible in bullion trading hubs linked to MCX derivatives. Several trading firms reportedly collapsed. In Rajkot alone, over 45 traders are said to have declared insolvency. In Indore, news of a firm incurring losses of around Rs 1,500 crore sent shockwaves through the Madhya Pradesh bullion market. Manufacturing clusters in Rajasthan, Gujarat, Madhya Pradesh, Maharashtra, Karnataka and Tamil Nadu — key jewellery production centres — saw prolonged disruption.

The tide turned as aggressive gold buying by major powers began to ease. Russia, seeking to stabilise its fiscal position, is learnt to have released significant quantities of gold into the market, contributing to a global price correction. The shift has brought visible relief in the Indian market.

While fluctuations in bullion prices are not unusual, traders say this year’s surge resembled an “unnatural tsunami”. Geopolitical instability, a strong US dollar and rupee depreciation were major drivers. At the same time, large-scale gold buying by countries such as China and Russia — seen as an attempt to reduce dependence on the dollar — added to the rally.

Social media speculation about further price spikes fuelled retail frenzy. Many investors entered bullion derivatives markets, while some consumers reportedly broke bank deposits to buy gold at elevated prices. The result was severe stress across the trade.

Scale of the sector

India imports about 700 tonnes of gold annually and recycles another 250 tonnes. Silver imports are estimated at $9–9.5 billion a year. A significant portion of trading takes place on commodity exchanges such as MCX through futures and options.

The Centre had projected higher revenue from transaction-related taxes in the Union Budget, but the volatility underlined how sensitive financial and commodity markets have become to policy and global signals, traders said.

With prices stabilising, manufacturing units that had cut their workforce by as much as 90% and sent workers back to their native places have begun calling them back. Factories that had shut solely due to high input costs are reopening, and trading activity is gradually resuming in major markets.

Industry voice

Bharat Oswal, President, Kolhapur District Bullion Association; Member, Gold Council, says, “This year’s shock to the gold and silver market was severe. Producers, traders and consumers — all have suffered. The episode is a reminder against chasing excessive profit and taking uncalculated risks. Both traders and buyers must remain cautious, as bullion markets are extremely sensitive to global developments.”