In the second half of August, gold prices started picking up amid US-China trade tensions and have remained above the Rs 36,000/10 grams level since. Sales of jewellers have been hurt as buyers postpone their purchases due to high prices.
In the first week of September, gold futures touched a new high of Rs 39,885 on MCX, while gold prices in retail jewellery stores in Mumbai had crossed the Rs 40,000 mark.
On Friday, gold futures closed at Rs 38,089 on MCX, still relatively expensive for small buyers across India. The trading markets are closed on Monday on account of state elections in Maharashtra.
While jewellers usually build inventory ahead of Diwali and Dhanteras, they haven't made any big purchases this time after seeing poor sales on the occasion of Dussehra, earlier this month.
Gold imports fell by 68 percent on a year-on-year basis in the month of September, to their lowest in over three years.
According to a Reuters report, discounts on gold in India had narrowed down to a four-month low in the last week. The discounts offered were up to $8 (approx Rs 567) for an ounce of gold (approx 28.3 grams), it further said, which has been the lowest since mid-June.
An increase in import tax of 12.5 percent and implications of an additional 3 percent sales tax on domestic prices of gold has also piled on to existing high rates.
A slight dip seen in the precious metal's prices (when compared to the last month) along with some discounts on making charges offered by the jewellers are hoped to be seen as an opportunity of buyers ahead of the festivities.