Gold Regains Momentum and Hits Record Highs as Festive Season Demand in India Is Expected to Rebound

Kavita Chacko, a research director at the World Gold Council in India, stated that the global and local gold markets are experiencing an exceptional wave of momentum, driven by increasing investment demand, a weaker dollar, and ongoing geopolitical risks. She affirmed that these combined factors have helped the yellow metal reach new highs in recent weeks.

Chacko added that gold futures contracts closed in mid-September at a historic level of $3,688.90 per ounce, bringing year-to-date gains to around 40%. She explained that global prices rose by 4% in August and then 6.7% in early September, supported by expectations of a U.S. interest rate cut, declining bond yields, and strong inflows into gold-backed exchange-traded funds (ETFs).

She noted that local prices in India were affected by the same momentum, adding that the weak rupee contributed to amplifying the gains, with prices rising by 44% year-to-date to reach 106,863 rupees per 10 grams. She pointed out that price discounts, which had prevailed since last December, began to narrow significantly and even turned into a slight premium in late August and mid-September, which is a significant development reflecting the strength of demand.

Festive Season: Investment Leads the Recovery

Chacko explained that investment demand for bars and coins led the recent recovery, while demand for jewelry was mixed. Wedding purchases remained relatively strong, but high prices affected daily and traditional purchases, prompting consumers to shift toward lower carats.

She added that major jewelers have seen increased foot traffic, supported by promotional campaigns and store expansion plans, while smaller jewelers continued to face demand pressures. She confirmed that the exchange of old jewelry for new was a key factor in boosting sales, noting that the value of these exchanges increased despite a decrease in quantities due to the high prices.

She also explained that wholesale dealers intensified their purchases since early September in anticipation of the seasonal demand increase with the onset of the festive season. This was also supported by expectations of a reduction in the Goods and Services Tax (GST) on a range of consumer products, which could provide an additional boost to household spending.

Gold ETFs: Record Inflows

Chacko confirmed that gold funds in India saw strong net inflows of 21.9 billion rupees ($250 million) in August, a 74% increase from the previous month and the second-largest inflow this year. She noted that the assets under management for these funds rose to a historic level of 724 billion rupees ($8.3 billion), with holdings increasing to 70 tons.

She added that redemptions fell to their lowest level in seven months, reflecting a long-term investment trend. She emphasized that investors preferred to stay in the market despite rising prices, which strengthens their confidence in gold as a strategic asset.

She pointed out that the market saw the addition of 164,000 new investment accounts in August alone, bringing the number of active accounts to 8.03 million, a 24% increase year-to-date. A new fund was also launched, raising the total number of gold funds in India to 22.

Central Bank and Reserves

Regarding the central bank's role, Chacko said that the Reserve Bank of India (RBI) did not add any new gold in August for the second consecutive month, with year-to-date purchases amounting to just 3.8 tons, compared to 45.4 tons in the same period in 2024.

However, she explained that the value of gold reserves continued to rise due to prices, reaching a record level of 880 tons. They now represent 12.5% of total foreign reserves, compared to 9% last year.

Imports: Resilient Demand Despite Prices

Chacko confirmed that gold imports rose sharply in August to $5.2 billion (+37% month-on-month), the highest level in 9 months. Imported quantities were estimated at around 60–65 tons, compared to 46 tons in July, reflecting the resilience of demand despite high price levels.

Chacko concluded her remarks by stating: "Gold in India is entering the festive season with strong momentum supported by investment demand and consumer expectations. Although high prices may limit some purchases, seasonal, economic, and geopolitical factors place the yellow metal in a strong position. These developments confirm that gold remains the most reliable haven in times of uncertainty."