India's gold demand experienced a dramatic 70% decline to 7.5 tonnes from nearly 25 tonnes following the government's decision to raise import duty from 6% to 15%. According to reports from The Main Street Observer, this represents far more than a routine market pause, with jewellers across India reporting continued weakness in purchases after the duty hike implementation. The sharp decline raises questions about whether this marks the start of a tougher demand regime for the remainder of 2026, or if it reflects typical seasonal lull patterns. Gold imports fell to 25-30 tonnes in May from 46 tonnes in April, reflecting the moderation in demand as the higher duty structure took effect, with gold imports falling 39% month-on-month to $3.4 billion.
India's physically backed gold exchange-traded funds recorded their first net monthly outflow in a year in May, driven by profit-taking following a price rally on higher import duties. As reported by Business Standard, investment demand has remained weak over the past few weeks, with a Mumbai-based bullion dealer with a private bank noting that jewellers are showing some interest in building inventories. However, The Main Street Observer reports that ETFs saw record May outflows, followed by a rebound in June, suggesting mixed signals about investor sentiment. After continuous inflows into gold ETFs for 12 months, gold ETFs recorded all-time high net outflows of ₹7.25 billion in May, driven by profit-taking as domestic gold prices rose around 6% soon after the 9% hike in import duty. However, flows turned positive again in early June with net inflows of ₹16.31 billion ($171 million) between June 1-11, indicating that investor interest in gold ETFs remains strong despite the initial outflows.
Gold demand remained modest in India this week as prices fell to their lowest level in two-and-a-half months, with domestic gold prices dropping to ₹146,252 per 10 grams on Friday, the lowest since April 2. According to reports from Business Standard, dealers in India quoted discounts of up to $54 an ounce over official domestic prices this week, inclusive of 15% import and 3% sales levies, widening from last week's discounts of up to $35. An Ahmedabad-based jeweller noted that while the price correction is helping bring buyers back to the market, excessive volatility is prompting some buyers to wait for a clearer price trend. As of June 15, international and domestic gold prices were down 4.2% and 3.7% respectively from the end of May, with domestic prices up around 13.2% year-to-date, largely reflecting the 9% increase in import duty in mid-May and 5.3% rupee appreciation against the US dollar. The local discount gap had widened to nearly US$150/oz after the duty hike, but had already tightened to around US$25/oz by June 15, showing market adjustment to the new tax regime.
The current demand weakness coincides with typical seasonal patterns, as reported by The Main Street Observer. Jewellery volume fell 19% in Q1 despite total demand reaching 151 tonnes, with high prices keeping value figures strong even as fewer families purchased in stores. Investment demand provided some support, rising 54% year-over-year to 82 tonnes in Q1, though this represents price-driven demand rather than steady household jewellery buying. Gold jewellery demand remained subdued through May and early June, a seasonally soft period, with demand for gold bars and coins also broadly stagnant. According to the World Gold Council, stakeholder interactions indicate that the Prime Minister's appeal to limit gold buying weighed on discretionary purchases, particularly in urban markets, although its effect appears more limited in rural areas where there is relatively limited reach in social media and related messaging. The council noted that lower availability of opportunistic supply, together with some pick-up in buying from select segments, likely contributed to the narrowing of discounts.
Gold prices have fallen over 23% since the start of the US-Israeli war against Iran in late February, pressured by fears of energy-driven inflation and expectations of higher US interest rates. As reported by Business Standard, in Japan, gold was sold at a discount of $0.25, while in Singapore, it was sold between a $0.50 discount and a $1.80 premium. The annual demand backdrop also supports the bearish outlook, with India's gold market falling about 11% to 710.9 tonnes last year. Market participants suggest that demand may pick up after the holidays or maybe in July or August, depending on geopolitical developments and investor sentiment, though the current duty hike creates additional headwinds for near-term recovery. Several fund houses in India introduced temporary limits on large investments into gold ETFs and gold ETF fund-of-funds amid broader concerns around gold imports, external balances, currency pressures, and the Prime Minister's appeal to consumers to curtail their gold buying.
