The World Gold Council reported that the recent surge of gold prices, which have reached new highs in the past year, has had a significant impact on India’s demand for retail gold jewelry.
The council stated that despite record high prices, which are putting pressures on the jewelry market, there is still a strong interest in investing in gold.
Kavita Chacko is the research director for India at WGC. She said that “the financial year end dynamics may reduce discretionary spending and further weigh down demand.”
Gold prices have risen by over 10% on the COMEX so far this year, with a number of records being broken.
Gold prices on COMEX hit new records of 2,973,40 dollars per ounce.
Chacko stated that “Indian prices are rising at the same rate as international prices. They have risen by 14 percent to INR86.831/10g2, a new record. The higher gain is attributed to the weakening of the INR against USD (depreciation by 1.1% y-t.-d).”
According to our analysis, the increase in gold price can be explained by a combination geopolitical risk, increased inflation concerns, and an increase in investment flows.
Demand for jewellery is declining
India’s demand for retail gold jewelry is being affected by the recent surge of gold prices, which have reached new highs.
Uncertainty surrounding Budgetary announcements also affects buying.
According to WGC, the demand for goods fell dramatically in January, and it continued to fall in February despite the Hindu calendar’s end on 15 January, and the usual increase of demand after the Union Budget.
Wedding-related sales have been affected by consumers’ early purchases made in November, when prices were cheaper.
Chacko stated that many people prefer to trade in their old jewelry for new pieces of jewellery.
As gold prices have risen above previous levels, consumers have also taken the chance to lock in their profits by selling old gold.
This is reflected in the widening difference between gold prices domestically and internationally, from $3 an ounce on average to $23 currently.
Retailers are reluctant to replenish their inventory due to the difficulty in meeting payment terms from manufacturers.
Since December, domestic gold prices have been trading below international prices due to this reluctance.
Chacko said that despite the decline in jewelry sales, investors’ interest has not waned for bars and coins. They expect further increases.
Price stability may be one factor that helps to mitigate the impact of jewelery on demand. This could improve in the coming fiscal year, starting April.
Inflows of ETFs record high
AMFI (Association of Mutual Funds in India) has reported that in January 2025, there were unprecedented net inflows of 37.5 billion rupees (435 million dollars) into Indian Gold ETFs. This indicates a good start for the investment.
The average net monthly inflow was 9.4 billion rupees (112 millions) during the previous 12 months.
Assets under Management (AUM), which is the total amount of assets managed by gold ETFs, grew 15% from one month to another to reach 51.8 billion rupees.
WGC stated that these results are in line with its initial estimations, which were made based on data available at the moment.
Chacko stated that “Anecdotal evidence suggests the January inflows were due to investors diverting their free cash towards gold ETFs as a diversification strategy amid global economic uncertainty and ongoing policy uncertainties at home and abroad.”
Due to continued weakening of India’s equity market, investors have been drawn into gold ETFs by the appeal of gold as a safe-haven asset.
RBI continues gold purchase
The Reserve Bank of India began purchasing gold again in January after a break of several months.
RBI’s gold buying pause in December ended 11 months of consecutive purchases.
Gold reserves at the central bank reached an all-time high after adding 2.8 tonnes of gold to them in January.
According to WGC, this suggests that RBI is likely to continue its gold accumulation.
The growth of gold in the currency reserves has led to an increase in its share from 7,7% in January 2024, up to 11,31% in early February 2025.
The RBI has adopted a diversification strategy to move away from the foreign currency asset, which saw its share drop from 88.5% in the first quarter of 2008 to 85.2% by the end of the year.
India’s imports of gold in January also saw a notable drop due to the high price.
India’s Ministry of Commerce has reported that the gold import bill for January was $2.68 Billion.
It is a decrease of 43% from December but an increase of 40% from the January before last year.
According to data, the estimated volume of imports for January is between 30 and35 tonnes.
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