The subdued demand is likely to reflect on the India International Jewellery Show
Although the price of gold took a break from falling on Thursday, the continued volatility in bullion prices kept Indian jewellers worried, with weak demand from both domestic and foreign markets.
Gold closed on Thursday at Rs 25,350 per 10gm in Mumbai.
Abroad, after remaining above $1,100 an oz for a day, it fell after announcement of good US jobs data, to $1,095 an oz.
Orders for the festive season abroad begin from next month.
The season stretches from the last week of December to mid-February and normally contribute 40 per cent of annual jewellery sales.
However, the trade outlook is a bit sombre.
After a 4.7 per cent jump in net jewellery export to $36.2 billion in 2014-15, these fell 11.3 per cent to $7.5 billion during this financial year's first quarter.
"While China has restricted purchase of jewellery, the Government of India has introduced severe restrictions on jewellery purchase by making a Permanent Account Number card mandatory beyond a level of bill, to identify purchasers.
"This has resulted in buyers shying away from fresh purchase. So, the perception is that jewellery demand would remain weak in the coming months," said Vipul Shah, chairman, Gems and Jewellery Export Promotion Council.
Mohit Kamboj, president of the India Bullion and Jewellery Association thinks the Diwali season jewellery demand would be 40 per cent less than last year.
"In a price fall scenario, consumers abstain from fresh purchase amid expectation of a further fall in gold prices.
"They will wait until bullion prices start moving upwards," he added.
Subdued sentiment in rural India will also result in lower gold demand.
Slumping demand for gold as a safe haven, a slowing in the Chinese economy and equity market, plus the expectation of the US Federal Reserve raising interest rates, thus strengthening the dollar, are three big reasons for the fall in gold prices.
"The government of India is also focusing too much on black money, which has created pressure on jewellers.
"In global markets, there is also less demand for jewellery at this price.
"So, either jewellers will have to cut production to restrict supply or import less of rough diamond and other raw materials to match the demand.
"In recent months, jewellery demand has been very low both in India and abroad," said Shah.
According to trade sources, both rough and polished diamond prices have declined by about six per cent in the past two months, due to less demand.
The subdued demand is likely to reflect on the India International Jewellery Show, the world's third largest, scheduled in Mumbai between August 6 and 9.
Booking orders are likely to remain down.
Image: A saleswoman arranges gold jewellery inside a showroom in Kolkata. Photograph: Rupak De Chowdhuri/Reuters