(Kitco News) – Record-high prices impacted jewelry demand as gold imports hit a six-month low in January, but they had the opposite effect on investment demand, with gold ETFs enjoying unprecedented inflows, according to Kavita Chacko, Research Head for India at the World Gold Council (WGC).
Chacko wrote in the latest WGC update that gold has not only reversed the 6% price decline of November-December, but it has since hit multiple fresh record highs.
“So far in 2025, the LBMA gold price AM in USD has surged by US$286/oz or 10% to US$2,938/oz,” she noted. “Domestic prices have been rising in parallel with international prices, rising by 14% to a record INR86,831/10g, with the higher gains attributed to the weakness in the INR against the USD (1.1% depreciation y-t-d).”
“Our analysis indicates that the upward climb in gold prices can be attributed to a combination of geopolitical risks, growing concerns about inflation, and increased investment flows,” she added.
Chacko also highlighted the key elements of the government’s new 2025-26 budget for the gold market.
“One of the key takeaways from the Union budget presented on 1 February for gold is that the import duty hasn’t been changed,” she said. “In the run-up to the budget, there were worries that the government might hike the duty due to the rise in gold imports after it reduced the duty by 9% back in July 2024.”
However, the government did cut the customs tariff on gold jewelry to 20% from 25%. “This is likely done as part of the overall rationalisation of tariffs across commodities,” she said. “However, since jewellery imports aren’t that significant and are limited to high-end jewellery (and of low caratage), this cut in duty is unlikely to have much impact on domestic jewellery production.”
She also noted the introduction of new import tariffs, which differentiate gold bars from jewelry and other types. “This is done to address the disruptions caused by imports of gold in forms such as platinum alloy and gold paste,” she said. “From May, the tariff rates can differ based on the new classification.”
The government also decided not to issue any gold-backed sovereign bonds. “This could work in favour of gold ETFs, as investors looking for gold-related financial products may turn to ETFs instead,” she said.
Turning to the domestic jewelry market, Chacho said the recent record-high gold prices have weighed heavily on retail demand.
“Anecdotal reports indicate that demand dropped sharply in January, and the weakness persisted into February, despite the end of the inauspicious period in the Hindu calendar (15 Dec - 15 Jan) and the usual-post Union Budget pick-up in demand,” she said. “Wedding-related purchases too have been subdued, suggesting that many consumers had front loaded their purchases when prices dipped in November.”
The slowdown in jewelry demand means retailers are now reluctant to restock, which has created a “liquidity crunch” within the industry. “The subdued demand environment was reflected in the widening spread between domestic and international prices,” she wrote. “Since December, domestic gold prices have been trading at a discount to international prices, with the gap widening from an average US$3/oz in December to US$23/oz.”
The high prices had the opposite effect on the investment front, with gold ETFs seeing record inflows in January.
“According to the Association of Mutual Funds in India (AMFI), gold ETFs recorded net inflows of INR37.5bn (~US$435mn) in January, significantly higher than the average inflows of INR9.4bn(~US$112mn) over the previous 12 months,” Chacko noted. “The cumulative assets under management (AUM) of gold ETFs grew to INR51.8bn(~US$6bn), a 15% m/m increase and 4.6t were added to the overall holdings, taking the collective holdings to 62.4t.”
“Anecdotal reports suggest that the strong inflows in January can be attributed to investors redirecting free cash flow towards gold ETFs for diversification amid ongoing global and domestic economic and policy uncertainty,” she added. “The sustained weakness in the domestic equity markets has also been driving flows into gold ETFs, with investors pulling back from equities in favour of the safe-haven appeal of gold.”
India’s central bank also added to its gold reserves last month after pausing in December following 11 consecutive months of buying.
“The central bank added 2.8t of gold to its gold holding during the month, taking its total gold reserves to a new high of 879t,” Chacko wrote. “This renewed buying suggests that the RBI is likely to continue with its gold accumulation, following a significant purchase of 72.6t in 2024, making it the third largest buyer of gold among global central banks that year.”
The share of gold in the RBI’s forex reserves has also been climbing steadily, increasing from 7.7% in January 2024 to 11.31% by early February 2025. “This increase reflects the RBI’s efforts to diversify its forex reserves, alongside a decline in its holding of foreign currency assets (from 88.5% to 85.2%),” she noted.
Turning to the import picture, Chacko said that gold imports slowed last month as high prices tamped down demand.
“Anecdotal market reports suggest that manufacturers did not pick-up imports, reflecting the depressed demand environment,” she said. “January's imports were the lowest since July 2024.”
“According to Ministry of Commerce data, the gold import bill for the month totalled $2.68bn, a 43% decrease compared to December,” she added. “However, it was approximately 40% higher than January of the previous year. We estimate that the volume of imports in January ranged between 30t - 35t.”
Looking ahead, Chacko said the World Gold Council expects investment interest in gold to remain strong, even as jewelry demand struggles under record-high prices.
“The financial year-end dynamics, which include statutory payments and tax-saving investments, may curtail discretionary spending, further weighing down demand,” she said. “However, price stability could be a mitigating factor for jewellery demand, which could see an improvement in the new fiscal year starting in April.”
