India's Gold Market Slows as Weak Demand and Higher Import Duties Curb Imports

India’s gold market has witnessed a notable shift in price trends and investment activity in recent weeks, as global gold prices retreated from their early-2026 highs while domestic prices continued to post strong gains, supported by higher import duties and a weaker Indian rupee, according to the latest report by the World Gold Council (WGC).

The report noted that international gold prices are now broadly flat year-to-date after correcting from record highs. As of June 15, global gold prices had declined 4.2% from the end of May, while domestic prices fell 3.7% over the same period. Despite the recent correction, Indian domestic gold prices remain approximately 13.2% higher since the beginning of the year.

The resilience of domestic prices has been driven primarily by the Indian government's decision to increase gold import duties by 9% in mid-May, coupled with a 5.3% depreciation of the Indian rupee against the US dollar, both of which significantly increased local gold prices.

According to the report, persistent inflation concerns have strengthened expectations that major central banks will maintain a tighter monetary policy, increasing the opportunity cost of holding non-yielding assets such as gold. At the same time, improved investor risk appetite and outflows from gold-backed exchange-traded funds (ETFs) have reduced investment demand, limiting gold’s upward momentum.

## Domestic Discounts Narrow as Market Rebalances

Following the import duty increase, India's domestic gold market moved into unusually deep discounts relative to official landed prices.

The discount widened sharply from an average of US$14 per ounce before the duty hike to nearly US$150 per ounce afterward, reflecting a temporary imbalance between supply and demand.

The report attributed this development to increased profit-taking by investors, liquidation of inventories imported before the tariff increase, and a rise in old jewellery exchange transactions, all of which boosted market supply while physical demand remained subdued.

However, since the second week of June, discounts have narrowed considerably to around US$25 per ounce, indicating that supply and demand conditions are gradually returning to normal as opportunistic selling eases and buying interest improves modestly.

Seasonal Slowdown Weakens Jewellery Demand

The WGC reported that jewellery demand remained subdued throughout May and the first half of June, a period that traditionally experiences seasonal weakness and was further affected this year by an inauspicious wedding season according to the Hindu calendar.

High price volatility also encouraged consumers to adopt a wait-and-see approach, while demand for gold bars and coins remained largely stagnant. Retail expansion also slowed as dealers adopted a more cautious outlook.

The report added that Prime Minister Narendra Modi’s public appeal urging consumers to reduce discretionary gold purchases had a noticeable impact, particularly in urban markets, although its influence was more limited in rural areas.

To offset weaker demand, retailers increasingly focused on old-gold exchange transactions. Industry feedback suggests that exchange business increased by between 5% and 15%, accounting for as much as 60% to 70% of total sales for some retailers.

Market participants generally expect demand to remain soft through June and July before improving from August as India enters its traditional festive and wedding season.

 Record Gold ETF Outflows Follow Profit-Taking

Indian gold ETFs recorded their first monthly net outflow since April 2025 during May, mirroring the broader weakness seen across global gold-backed funds.

Net outflows reached INR7.25 billion (US$76 million), marking the largest monthly withdrawal ever recorded in rupee terms.

Gross redemptions also climbed to a record INR33.3 billion (US$348 million), while total holdings remained broadly stable at approximately 116.5 tonnes and assets under management stood at INR1.846 trillion (US$19.3 billion).

The report attributed the outflows primarily to profit-taking after the 9% import duty increase triggered a sharp rise in domestic gold prices, which jumped roughly 6% immediately following the policy announcement.

Investor accounts also declined by more than 134,000 during May—the steepest monthly decline on record—reducing the total number of active investor folios to 12.3 million.

Despite the heavy redemptions, investor sentiment quickly improved. Between June 1 and June 11, Indian gold ETFs recorded net inflows of INR16.31 billion (US$171 million), suggesting that long-term confidence in gold remains intact.

Temporary Investment Limits Introduced

Several Indian asset management companies have introduced temporary restrictions on large investments in gold ETFs and gold ETF fund-of-funds, citing prevailing market conditions.

The measures come amid broader concerns over rising gold imports, pressure on India's external balance and currency, and the government's efforts to discourage excessive gold purchases.

According to data from the Association of Mutual Funds in India (AMFI), corporate investors account for 58% of total gold ETF assets, followed by high-net-worth individuals at 31%, while retail investors represent 11%.

 Digital Gold Purchases Moderate

Digital gold purchases through India's Unified Payments Interface (UPI) also slowed during May.

Transaction values declined by 2% month-on-month to INR24 billion (US$256 million), while estimated purchase volumes fell 5% to approximately 1.54 tonnes.

Nevertheless, digital gold purchases remained above the 16-month average, indicating that investor interest in digital gold products remains relatively resilient despite the slowdown.

 Higher Duties Reduce Gold Imports

The sharp increase in import duties also weighed on India's gold imports.

Gold imports declined 39% month-on-month to US$3.4 billion in May, although they remained 34% higher than the same month last year.

The World Gold Council estimates that import volumes fell to between 25 and 30 tonnes, compared with 46 tonnes in April and a two-year average of 59 tonnes.

Gold's share of India's total merchandise imports also dropped to around 5%, down sharply from approximately 14% recorded during January and February, highlighting the cooling effect of higher import duties on domestic demand.