The sharp depreciation in the rupee against the US dollar will keep the gold prices high in the domestic markets reining in jewellery demand during the festival season, industry circles said.
In the last 10 days, the rupee has fallen to 88.25 on Friday from 87.07 on August 19, making the yellow metal pricier as the fall in the local currency pushes up the value of dollar denominated gold.
Gold prices climbed ₹882 to ₹102,388 per 10 gram on Friday from ₹101,506 per 10 gram on Thursday. The precious metal has gained three per cent or ₹3,220 to ₹102,388 from ₹99,168 on August 19.
Avinash Gupta, Vice-Chairman of the All-India Gem and Jewellery Domestic Council, said the pressure on the rupee and rising gold prices will ripple through domestic markets, dampening consumer sentiment and squeezing small retailers.
"We are staring at a dual crisis of weakened global competitiveness and shrinking local demand. The government must urgently recalibrate its trade strategy to shield this vital sector," he added.
Colin Shah, MD, Kama Jewelry said the higher duty by the US threatens India's gems and jewellery industry as it is the largest market worth over $10 billion driving almost 30 per cent of the industry's entire global trade.
The industry's exports to the US may drop by over 50 per cent since these tariffs are put in effect, risking both revenues and jobs in major manufacturing clusters, he added.
Ajay Kumar, Director, Kedia Commodities, said the consistent gold purchase by the central banks across the world, especially that of China and India, has also been pushing up gold prices in global markets.
In India, the rupee depreciation may hold yellow metal firm between ₹1,03,500 and ₹1,00,350 per 10 grams, he added.
Last month, the People's Bank of China purchased 2 tonnes, marking the ninth consecutive monthly addition, according to the World Gold Council report. China has bought 21 tonnes so far this year, taking its official gold holdings to 2,300 tonnes adding up to 6.8 per cent of the total reserve.
Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities, said growing trade tariff concerns and unresolved India-US trade-related issues continue to keep gold elevated, while the depreciating rupee makes gold more expensive in Indian markets.
Rupee has been on a free fall ever since the trade war with the US intensified after President Donald Trump increased duty on Indian goods to 50 per cent.
A possible slowdown in key export-oriented sectors such as textiles, gems and jewellery and few agriculture commodities has hit rupee hard.