India Gold market showing signs of recovery

After facing significant headwinds over the last couple of months, a recovery seems to be brewing in the Indian gold market.

India ranks as the second-largest gold market behind China.

After domestic gold corrected sharply in June, the price stabilized in July and began recovering in early August.

In rupee terms, gold gained about 7 percent through the first two weeks of this month.

Rupee strength offset the rise in international gold prices, which gained about 9 percent through the same period.

According to the World Gold Council, “Shifting monetary policy expectations, a weaker U.S. dollar, and renewed inflows into gold ETFs supported gold prices, contributing to the recent recovery in the gold market.”

Even with the price recovery, gold is still selling at a modest discount in India, indicating ample supply. According to the WGC, the exchange of old gold jewelry for new has protected supply. However, the discount has narrowed from as high as $100 per ounce in mid-May and early June to around $45 in mid-August.

After two straight weak months, gold imports rose in July, signaling stronger demand.

Gold imports doubled, rising from 20 tonnes in June to an estimated 40-45 tonnes in July.

Last year's surging gold price created significant headwinds for the Indian gold jewelry market. With the price moderately lower, the World Gold Council reported that jewelry demand has improved.   

“Industry feedback suggests that deferred purchases returned to the market, resulting in higher footfall and a recovery in demand beyond essential wedding-related purchases. Manufacturers have reportedly begun receiving higher order flows, and inventory replenishment by jewelers has picked up ahead of the festive season, suggesting growing confidence in seasonal demand.”

Meanwhile, physical gold investment demand eased after the recent correction; however, it was robust enough to support the market. According to WGC analysis, “Lower prices continued to attract investors seeking strategic exposure to gold, while the recent rebound appears to have revived interest.”

ETF flows also signal resilient investment demand.

Gold holdings by funds based in India increased by 1 tonne valued at ₹15.6 billion ($163 million).

Indian ETFs currently hold 120 tonnes of gold with assets under management (AUM) totaling ₹1,733 billion ($18.1 billion).

ETF investor participation increased by 57,000 new portfolios, raising the total number of Indian ETF accounts to 12.53 million.

ETFs are a convenient way for investors to play the gold market, but owning ETF shares is not the same as holding physical gold.

Meanwhile, trading volumes in July picked up, with volumes on the Multi Commodity Exchange of India (MCX India) rising to 14.9 tonnes, up from an average of 13.5 tonnes over the previous three months.

Looking ahead, World Gold Council analysts say demand appears to be improving, raising expectations for a stronger festival season.

“While elevated prices may continue to influence jewelry purchases, investment demand remains supportive.”