Editor’s Note
Gold continues its record-breaking rally, with domestic prices up 13% this year. While high prices are curbing jewellery demand, they are fueling old gold sales and sustaining investment interest. India’s gold imports hit an 11-month low in February, even as ETF inflows remained healthy.
Gold’s price momentum remains strong, breaching records, with domestic gold prices gaining 13% year-to-date. Price rises dampen jewellery purchases but boost old gold sales; investment demand is sustained: gold ETFs see healthy inflows in February, although below January’s peak. The Reserve Bank of India (RBI) gold holdings remained unchanged in February. Gold imports dropped to an 11-month low in February.
Expectation is growing that seasonal factors (auspicious days and festivals) and wedding-related purchases could lend support to gold demand over the next couple of months. This may not, however, fully compensate for the price-driven constraints in jewellery demand.
Gold’s momentum has been exceptionally strong in 2025. So far this year prices have hit 13 new highs and have crossed the psychological threshold of US$3,000/oz. This performance, which has been replicated across major currencies, is driven by economic trends and sustained investment demand.
So far in 2025, the LBMA gold price AM in USD has risen by US$330/oz or 12%, to US$2,999/oz, with over 4% of that increase taking place in the first half of March. The Indian domestic landed price has risen in tandem, gaining 17% to reach a record INR88,946/10g. The larger gains can be attributed to weakness in the INR against the USD (1.3% depreciation year-to-date). However, given the weakness in demand – particularly in jewellery – the domestic gold price remains at a discount relative to the landed price. The discount, or spread, between local and landed prices averaged US$12/oz in the first half of March, slightly narrower than the US$17/oz spread observed in February.
Gold remains India’s top performing asset, with year-to-date gains of 13%, in sharp contrast with the negative return from domestic equities and notably surpassing gains in fixed income assets (bonds and bank deposits). This underscores the strategic significance of gold in investor portfolios.
Record high prices have dented demand, particularly for gold jewellery, with purchases restricted to those that are need-based, primarily weddings. In addition, financial year-end dynamics, such as statutory payments and tax-saving investments, are curtailing discretionary spending and further weighing on demand. This slowdown is broad-based across both urban and rural areas.
Despite this, notwithstanding an easing in momentum, investment demand for bars and coins remains relatively healthy, driven by bullish sentiment regarding the future trajectory of the gold price.
The surge in gold prices has prompted sales of old gold jewellery. Retailers have reported a significant uptick in scrap or old gold sales, with some attributing up to a third of their sales to the exchange of old jewellery for newer, lighter pieces. Furthermore, loans against gold jewellery have increased. To the end of January this year, retail gold loans by commercial banks were up 77% year-on-year, indicating that consumers are increasingly leveraging gold for liquidity and financial gain.
Indian gold ETFs continued their inflow in February. While lower than January’s record high, they remained healthy, driven by broadening investor interest amid global economic and market uncertainty and the positive momentum in the gold price.
According to the Association of Mutual Funds in India (AMFI), gold ETFs recorded net inflows of INR19.8bn (~US$227mn) in February, marking the tenth consecutive month of positive flows. Although lower than January’s peak, this surpassed the average net inflow figure (INR14.8bn/US$175mn) recorded over the preceding nine months. February also witnessed significant redemptions, totalling INR7.8bn/US$89.7mn – the highest since April 2024. This may be attributed to profit taking as gold prices surged. Despite these redemptions, investor participation remained strong with 0.3mn investor accounts (or folios) added during the month, bringing the total number of gold ETF investor accounts to a record 6.8mn, reflecting a growing investor interest in this instrument. Cumulative assets under management (AUM) of gold ETFs grew to INR55.7bn (~US$6.4bn), up 7% month-on-month and 95% year-on-year. Overall holdings increased by 2.2t, taking collective holdings to 64.6t.
