Kavita Chacko, Head of India Research at the World Gold Council (WGC), stated that despite sharp gold price volatility in August, Indian jewellery purchases remained resilient, physical investment demand stayed steady, gold ETFs continued to record positive inflows, and gold futures turnover climbed to a five-month high.
In the latest India market update, Chacko noted that international gold prices and domestic Indian gold prices rallied sharply in August, and domestic discounts widened accordingly. She said strong investment inflows and a weaker US dollar were key drivers pushing gold prices higher. Domestic gold prices in India largely tracked global trends, rising 12% for the month to 158,854 Indian rupees per 10 grams, though a mild appreciation of the Indian rupee trimmed part of the gain. Entering September, affected by shifting Fed policy expectations and slower global gold ETF capital flows, international gold prices fell by 3.9% and domestic prices dropped by 4.6%.
Chacko also mentioned that domestic Indian gold prices remained below import parity in September, signalling sufficient local supply to meet demand. She said discounts widened from an average of $34 per ounce in July to $51 per ounce in August, and further expanded to $78 per ounce on September 11, meaning local gold prices were roughly 2% below landed costs. Market feedback indicates trade-ins boosted local supply, helping keep domestic prices below landed costs. In addition, ample unregulated supply is also viewed as a factor behind wider discounts.
Cautious Start to the Festival Season
The World Gold Council pointed out that India’s festival season has got off to a cautious start. Chacko said gold jewellery demand picked up ahead of the festival season but cooled in recent weeks. The rapid run-up in gold prices in August followed by a pullback has led many consumers to adopt a wait-and-see stance and delay non-essential purchases. Retailers have also remained cautious about restocking, preferring to replenish inventory based on realised demand. Some manufacturers reported delayed order placement from retailers.
Nevertheless, wedding-related demand remained resilient. Anecdotal evidence cited in the report shows consumers continued to favour lighter-weight jewellery amid historically high prices. Chacko said large retailers saw relatively stronger demand and rolled out more new products, marketing campaigns and promotions. They also adjusted strategies to prioritise faster-turnover items. Despite the recent slowdown in demand, the industry maintains cautious optimism about overall demand during the peak festive and wedding seasons. Market participants said physical investment demand stayed stable, yet some investors seem to be shifting from physical gold to digital gold.
ETF and Digital Gold Remain Popular
India’s gold ETF market stayed robust last month. Chacko wrote that net inflows into Indian gold ETFs rose 67% month-on-month in August to $272 million. In terms of holdings, ETF positions increased by 1.6 tonnes, bringing total holdings to 121.3 tonnes and total assets under management (AUM) to 1.912 trillion Indian rupees, equivalent to around $20 billion. She pointed out that although inflows were still far below the exceptionally strong levels seen in Q1, positive inflows peRSIsted for most of the year, showing investors still regard gold as a vital asset allocation tool.
Still, investor participation slowed. Roughly 4,000 new gold ETF accounts were opened in August, lifting the total number of accounts to 12.54 million, sharply lower than the average 330,000 new accounts added each month from January to July. This suggests existing investors kept adding gold holdings via ETFs, while the pace of new investor entry slowed.
Capital flows into digital gold remained stable between June and August, with average monthly purchases of around $262 million. Chacko said monthly purchase volumes stayed steady during this period, yet August purchase value jumped 110% year-on-year, showing rising appeal for digital gold. Measured by volume, average monthly purchases stood at roughly 1.6 tonnes from June to August. The steady buying pace demonstrates digital gold continues to gain market acceptance thanks to divisibility, easy access and suitability for regular accumulation.
Futures Activity Hits Five-Month High
Trading activity on India’s gold futures market picked up notably in August, in line with rising activity across global gold markets. Chacko stated that on the Multi Commodity Exchange (MCX), average daily turnover climbed 38% month-on-month to 295 billion Indian rupees, approximately $3.1 billion, hitting a five-month high. Average daily volume rose 27% month-on-month to 19 tonnes. The rise in trading activity coincided with the strong gold price rally that month, likely spurring more hedging and tactical trades and lifting overall liquidity and market attention. Even so, turnover and volume were still 48% lower than the January peak despite the monthly improvement.
Imports Slump but Supply Remains Adequate
As the world’s second-largest gold market, India’s gold imports slowed sharply in August to $2.3 billion, down 45% month-on-month and 58% year-on-year. Chacko estimated physical import volumes at roughly 15 to 20 tonnes. Gold’s share of total merchandise imports dropped to 3%, compared with 9% a year ago. She believes the import decline indicates existing domestic supply is enough to meet expected demand.
Looking ahead, Chacko said the World Gold Council expects demand to improve as the festive and wedding seasons progress, supported by stable investment demand and resilient wedding-related purchases. However, high gold prices and peRSIstent volatility may constrain discretionary consumption. For the market, this means India’s gold demand will likely maintain the pattern of "strong investment, cautious consumption" in the short run, and gold price movements will remain the key variable shaping performance during the festive season.