India's gold jewellery demand recovers as investment shifts to ETFs

Stabilising gold prices have prompted Indian consumers to return to jewellery stores, driving a recovery in demand ahead of the key festive season starting in August. Manufacturers are already witnessing fresh order bookings from retailers preparing for this period, indicating markedly improved sentiment. The revival is primarily concentrated in jewellery, whereas investment demand for physical gold bars and coins has softened as the absence of rising prices reduces their speculative appeal.

The improving consumer sentiment is already reflecting in the corporate earnings of major listed jewellers. These companies reported revenue growth of 30% to 60% year-on-year for the April to June quarter, a typically inauspicious period that usually tempers purchases. The strong performance was supported by regional festivals, the summer wedding season, and Akshay Tritiya in early Q2, with both plain gold and studded jewellery posting double-digit sales growth.

Retailers are aggressively capitalising on the price correction to drive footfall and convert inventory. Promotional campaigns, discounts, and flexible payment options have pushed old gold exchanges to account for 43% to 55% of quarterly sales. Industry confidence in the medium-term outlook is further evidenced by sustained physical expansion, with major chains adding between 8 and 33 outlets across the country during the quarter.

While physical bar demand wanes, investors are treating the price pullback as a strategic entry point for paper gold. Indian gold ETFs bucked a global trend of outflows in June, attracting INR 34.4bn ($356mn) in net inflows, the highest volume since February. Holdings rose by 2.2 tonnes to 119 tonnes, even as the cumulative assets under management fell 8% month-on-month purely due to the decline in underlying gold prices.

This dip-buying has continued into July, with estimated net inflows reaching INR 12.1bn ($127mn) in the first ten days of the month. Investor participation is broadening, with 135,000 new accounts opened in June, bringing the total to 12.5 million. Digital gold purchases via the Unified Payment Interface also rebounded to a three-month high, with transaction volumes rising 9% month-on-month to 1.7 tonnes, comfortably above the 17-month average of 1.4 tonnes.

Despite this positive momentum, overall Indian gold demand remains below normal historical levels. However, the combination of early festive restocking and structural growth in digital and ETF channels suggests the market is successfully adapting to the recent price environment.