The onset of the festive season in the Indian subcontinents has left India's jewellery makers bewildered as the demand for the yellow metal did not match the expectations of the bullion marketers, who believed jewellery buying during festivities to shoot up despite peaking up prices.

In India, MCX Gold for October contract traded at Rs.18698 per 10 grams, which was down by Rs.29 per 10 grams. In the spot markets as well, the prices remained lower. Gold Ahmedabad hovered at Rs.18660 down by Rs.65, while Gold Mumbai traded at Rs.18696.25 down by Rs.25 from its previous closing. But the overall trend in the gold prices showed steep rise over past several months. The yellow metal has appreciated by 6% so far during the year.

The onset of two big festivals has failed to draw big fat Indian jewellery buyers, who are one of the largest gold consumers in the world. Speaking to CommodityOnline over the phone, Suresh Hundia, President, Bombay Bullion Association (BBA) mentioned that the despite the beginning of the festive season in the Indian subcontinent, the demand seems to be sluggish owing to higher gold prices.

We see only 50% demand from what we had seen last year. The jewellery buying has not picked up well in the country despite the festive season standing right around the corner. This is mainly due to peak prices, which are hovering at around Rs.18,800 per 10 grams, Hundia said.

However, market analysts are of the opinion that the gold prices do not seem to be falling so significantly in near term from its current levels; hence the present prices might not discourage buyers to that extent as has been feared.

The industry experts are of the opinion that the buyers may not give too cold response to the festive discounts and offers given by the jewellery stores.

There does not seem to be any sudden fall in the prices, despite the weak demand in the market as the international cues are playing strong role in determining the domestic prices of the yellow metal. I see gold prices being in the range of Rs.17500 to Rs.19200 till the major Indian festival of Diwali, Hundia told CommodityOnline.

But, considering regional disparities, gold demand in Gujarat has remained upbeat right from the start of the festivities from today itself. Gujarat, which has a large population of Malayali-origin has seen its gold demand rising significantly due to Onam festivities accompanied by the festival of Rakhi, which falls on Tuesday, August, 24, 2010.

Manoj Soni, Director, AB Jewels - A prominent jewellery mall in Ahmedabad, informed that jewellery demand has been upbeat in spite of the prices ruling high at Rs.18800 per 10 grams. Looking at the rush for jewellery buying, it seems that people have almost accepted the current prices and are all set to welcome the festivals with open arms. I believe only Ahmedabad will witness bold buying to the tune of 100 tonnes ahead of Raksha Bandhan tomorrow, said Soni adding that most of the buying was seen in the jewellery form and for the gifting purpose.

Taking into account the Hindu Mythology, the current period is considered as a peak time for gold purchases. Industry experts maintained that people buy more gold during the current period, as it is considered inauspicious to buy gold in the 'Shraddha Paksha' (A 15-days period in the month of Bhadarva), which falls just before the marriage season. This prompts buyers to buy gold well in advance and also at a cheaper rate.

The prices usually start picking up days before Diwali festival, which come after about a month from 'Shraddha Paksha'.

According to Soni, Today, the buying is happening at Rs.18870 per 10 grams. But we believe further upside in the prices to the tune of Rs.500 to Rs.1000 per 10 grams by Diwali as by then the demand situation would further improve.

On Monday, August 23, 2010 the international gold, which guides the domestic market, stood at USD 1,228.55 to 1,229 per ounce, up by around USD 2 per ounce from its previous closing. The prices have shot up by 6% so far during the year.