Despite high prices, a recovery in gold demand is anticipated with the onset of the festive and auspicious buying season from mid-August, according to a report released by the World Gold Council. Investment demand for physical gold and gold-linked financial products is expected to remain resilient, supported by sustained investor interest.
Gold prices in May saw a pause in the uptrend after four consecutive months of gains, ending the month nearly flat just below USUSD 3,300/oz. Trading was largely range-bound, with gains capped by global gold ETF outflows and the strong returns of April. At the same time, tariff-related policy risk, a weaker US dollar, and rising inflation expectations supported prices. Gold regained momentum in June, rising 5 per cent month-to-date to USUSD 3,435/oz, driven by the flare-up in geo-political tensions following the Israel-Iran attacks and a rebound in ETF demand. Year-to-date, gold has remained a standout performer, up 32 per cent in U.S. dollar terms.
Domestic gold prices broadly followed international trends, closing May 1 per cent higher and moving in the Rs 92,000–97,000 per 10 gm range. So far in June, prices have risen by 4%, reaching Rs 98,732 per 10g. Domestic prices, however, have continued to trade at a discount to international benchmarks (after adjusting for exchange rate and taxes), primarily due to subdued jewellery demand. The average discount has widened significantly – from USUSD 12/oz in mid-March to over USUSD 38/oz by 13 June.
WGC said that the jewellery demand has been underwhelming following the April-May wedding season. According to market reports, softer prices in May boosted store footfalls, particularly for larger retailers offering promotional campaigns. Despite this, demand remained subdued and was largely centred around need-based purchases.
In contrast, physical investment demand for gold bars and coins, which account for nearly 30 per cent of consumer demand, has been sustained, supported by positive price momentum. There has been a steady and gradual uptick in demand for these products, underpinned by expectations of a further increase in gold prices and relatively lower fabrication costs. Notably, demand has been concentrated in lower-grammage coins, particularly those weighing less than 10g.
Anecdotal reports suggest that consumers are increasingly monetising their existing gold jewellery holding, either by exchanging them for new pieces, liquidating them, or using them as collateral for loans. The RBI’s recent relaxation of norms for loans against gold jewellery is expected to further support this trend. As of end-April, lending by commercial banks in this segment had surged nearly 120 per cent y/y to INR2,230bn (USUSD 26bn).
Indian gold ETFs regained momentum in May, recording net inflows of INR2.9bn (USUSD 34mn) after two consecutive months of outflows. The inflows, though modest compared to the 10-month average of INR15.3bn (USUSD 181mn) up to February, exceeded WGC’s initial estimates, based on early data, and reflected renewed investor interest. This was likely supported by sustained safe-haven demand amid ongoing geopolitical turmoil and market volatility. Preliminary data indicate that the trend of net inflows persisted through the first half of June.
According to data from the Association of Mutual Funds in India (AMFI), the cumulative assets under management (AUM) of the 20 gold ETFs rose to INR624bn (USUSD 7.3bn), marking a 97 per cent y/y and 2 per cent m/m increase. Total gold holdings inched up to 64.65t, with an addition of 0.2t during the month. Investor participation also continued to grow, with 0.22mn new accounts (or folios) added during the month, bringing the total number to 7.3mn, a 38 per cent y/y growth, signalling continued and broadening investor interest in gold as a financial asset.
The RBI has stayed on the sidelines of gold buying since March, adding just 3.4t so far this year, sharply lower than the 30.6t purchased during the same period last year. This pause could likely be linked to the steep rise in gold prices since the beginning of the year, a trend that has been observed among other central banks too.
However, despite the lower purchases, India’s gold reserves have climbed to a record 879.6t, now accounting for 12.3 per cent of total foreign exchange reserves, up from 8.7 per cent a year ago. This marks the highest ever share of gold in the reserves, underscoring its growing strategic role in the RBI’s reserve mix.
Gold imports in May totalled USUSD 2.5bn, marking a 13 per cent y/y decline and an 18 per cent drop from one month ago. This represents the second consecutive month of decline and aligns with a softer domestic demand environment. Based on our estimates, import volumes for the month were in the range of 27t to 32t, down from 35t in April and significantly lower than the 41t recorded in May 2024.
