India's festive season starts cautiously amid price volatility, gold ETFs and futures stay strong in August – WGC's Chacko

Indian jewelry buying was resilient and physical investment demand remained steady despite August’s gold price volatility, while ETF demand remained positive and gold futures volumes hit a five-month high, according to Kavita Chacko, Research Head for India at the World Gold Council (WGC).

In the latest WGC India update, Chacko wrote that both international and domestic gold prices surged in August, while domestic discounts widened. “Strong investment flows and a softer US dollar were key drivers of the rally,” she said. “Domestic gold prices broadly mirrored the global trend, rising 12% during the month to INR158,854/10g, although gains were slightly tempered by the marginal appreciation of the INR. Both international and domestic prices have pulled back in September, declining 3.9% and 4.6% respectively, amid shifting expectations around Fed policy and softer global gold ETF flows.”

Chacko noted that domestic gold prices continue to trade below import parity in September, indicating that there’s adequate supply to meet local demand. “Discounts widened from an average US$34/oz in July to US$51/oz in August and further to US$78/oz as of 11 September, leaving domestic prices trading nearly 2% below import parity or landed price,” she said. “Market feedback suggests that the exchange of old gold for new jewellery has boosted local supply and helped keep domestic prices below the landed cost. The availability of unofficial supply is also cited as a contributing factor behind the widening discount.”

The World Gold Council has noted a tentative start to India’s festive season. “Industry feedback suggests that the strength in gold jewellery demand seen in the run-up to the festive season, which began in late August, has softened over recent weeks,” Chacko said. “The sharp gold price rally in August, followed by the subsequent pullback, has left many consumers in a wait-and-watch mode, delaying discretionary purchases. Retailers have also been cautious about inventory building, preferring to replenish based on realised demand, while some manufacturers have reported delays in uptake of orders by retailers.”

But wedding-related demand has shown resilience, though the report cited anecdotal evidence that showed a continued shift towards lighter-weight jewelry amid historically high prices. “The large retailers have seen comparatively stronger demand and have stepped up product launches, marketing initiatives and promotional campaigns, while also refining their strategies to favour faster-moving products,” she said. “Despite the recent moderation, the trade remains cautiously optimistic about demand during the peak festive and wedding season. Market participants report that physical investment demand remains steady, although some investors appear to be shifting from physical gold towards digital forms of gold.”

India’s gold ETF market also continued to see strength last month, with inflows into Indian gold ETFs up 67% month-over-month to $272 million in August. “In volume terms, holdings increased by 1.6t, taking cumulative ETF holdings to 121.3t, while cumulative AUM rose to INR1,912bn (~US$20bn),” Chacko wrote. “Although inflows remain well below the exceptionally strong levels seen in Q1, they have stayed positive on a near-sustained basis throughout the year, underscoring investor appetite for gold as a portfolio allocation.”

Flows into digital gold remained steady from June through August, averaging approximately $262million per month. “While monthly purchases were broadly stable over the period, demand was significantly higher than a year earlier, with August purchases u...