Gold Market Trends
In May, gold prices temporarily halted their upward momentum after four consecutive months of gains, ending the month nearly unchanged at just under US$3,300 per ounce. The market experienced limited movement, with gains held back by outflows from global gold ETFs and strong returns from the previous month. However, several factors—including trade policy concerns, a weaker US dollar, and expectations of rising inflation—helped provide price support. By June, prices bounced back, climbing 5% to US$3,435/oz, driven by renewed geopolitical tensions (notably the Israel-Iran conflict) and revived interest in ETFs. So far this year, gold remains a top-performing asset, with a 32% increase in USD terms.
India’s Domestic Price Movement
Gold prices in India largely mirrored international movements, ending May 1% higher in the INR 92,000–97,000 per 10g range. In June, prices rose an additional 4% to INR 98,732 per 10g. Despite these increases, Indian gold still trades at a discount compared to international rates, mainly due to muted jewellery demand. This discount widened significantly from US$12/oz in mid-March to US$38/oz by mid-June, even after adjusting for currency and tax differences.
Jewellery Demand & Investment Behaviour
Muted Jewellery Sales, Despite Offers
Demand for gold jewellery remained weak following the busy April–May wedding season. Although the slight price decline in May drew more customers—especially to larger retailers running promotions—most purchases were limited to essentials, and overall interest stayed low.
Stronger Investment in Gold Bars and Coins
In contrast, investment in physical gold, particularly bars and coins, remained strong, accounting for nearly 30% of total consumer demand. Buyers continued to show interest due to price optimism and relatively lower production costs. Notably, buyers preferred smaller-sized coins, especially those under 10 grams.
Increased Monetisation of Old Jewellery
Reports indicate that more consumers are converting their existing gold holdings into cash—either by exchanging, selling, or using them for loans. This trend has been encouraged by the RBI’s relaxed loan policies on gold jewellery. As a result, commercial bank lending in this segment rose sharply—up 120% year-on-year to INR 2,230 billion (US$26 billion) by end-April.
Gold ETF Investments Recover
India’s gold ETFs experienced a renewed uptick in May, with net inflows of INR 2.9 billion (US$34 million), ending a two-month stretch of withdrawals. While this was below the 10-month average of INR 15.3 billion (US$181 million), the figure exceeded initial projections and highlighted renewed investor confidence. This recovery is likely due to continued safe-haven demand amidst geopolitical uncertainty and market instability. Early data for June suggests this trend has continued into the month.
As per the Association of Mutual Funds in India (AMFI), total assets under management (AUM) of 20 gold ETFs rose to INR 624 billion (US$7.3 billion), representing a 97% year-on-year and 2% month-on-month growth. The overall gold holdings slightly increased to 64.65 tonnes, with 0.2 tonnes added in the month. Investor participation also expanded, with 220,000 new folios opened in the same period, bringing the total to 7.3 million, indicating a 38% rise over last year and sustained interest in gold as a financial asset.
RBI Maintains Pause on Gold Buying
The Reserve Bank of India (RBI) has not resumed gold buying since March, with purchases totaling just 3.4 tonnes this year—substantially lower than the 30.6 tonnes it acquired during the same time last year. This cautious approach is likely due to the sharp surge in gold prices, a pattern mirrored by other global central banks.
Despite the slowdown in buying, India’s gold reserves have reached an all-time high of 879.6 tonnes, now making up 12.3% of the country’s total foreign exchange reserves, up from 8.7% last year. This is the highest share gold has ever held in India’s reserve mix, highlighting its increasing strategic importance.
Further Drop in Gold Imports
India’s gold imports in May were valued at US$2.5 billion, showing a 13% year-over-year drop and an 18% decline compared to April. This is the second month in a row where imports have fallen, pointing to a weaker domestic demand. Estimated import volumes for May were between 27 and 32 tonnes, down from 35 tonnes in April and significantly below the 41 tonnes recorded in May 2024.