Investor appetite for precious metal exchange-traded funds (ETFs) rebounded sharply in June after four months of decline, with gold and silver ETFs attracting around ₹8,000 crore in net inflows according to Business Standard reports. Silver ETFs led the recovery with estimated ₹4,900 crore of net inflows, reversing four consecutive months of net outflows totalling nearly ₹3,770 crore. Gold ETFs also returned to positive territory with estimated net inflows of around ₹2,900 crore after witnessing their first monthly redemption in over a year in May. The renewed interest came after a sharp correction in bullion prices, with domestic gold prices declining around 9.7% during June and silver tumbling 14.4%, taking both metals to multi-month lows.
According to Mint reports, Indian investors in gold ETFs face a dual investment challenge involving both gold price movements and currency fluctuations. Gaurav Arora, Head of Research at Sahi, explained that when investing in Indian Gold ETFs, investors make two simultaneous bets - one on gold and one on the rupee. The impact becomes clear when international gold prices remain unchanged at around $4,067 per ounce over two months, while a weakening rupee from ₹94.30 to ₹98 per dollar would increase domestic gold value from ₹3,81,915 to ₹3,96,900, generating a 3.9% gain for Indian investors despite flat global prices. However, the current volatility means that gold rates are fluctuating daily around ₹1.44-1.45 lakh per 10 grams, making currency impact more pronounced during periods of price instability.
As reported by Mint, Devarsh Vakil, Head of Prime Research at HDFC Securities, noted that India imports most of its gold, making domestic prices highly sensitive to currency movements. The rupee's steady depreciation over the past two decades has significantly enhanced returns for Indian investors beyond global gold price increases. Karan Aggarwal, Co-Founder & CIO at Ametra PMS, confirmed that gold priced globally in US dollars serves as a natural hedge against currency depreciation, with INR depreciation traditionally adding around 3% annually to investors' returns. This natural hedge effect has been particularly beneficial during periods of economic uncertainty, with gold consistently reaching new highs after 2022 due to persistent global uncertainty and strong institutional demand. However, the current volatility means that rupee strength can moderate gold returns even when global gold prices remain unchanged, as seen with the recent price corrections.
The June inflows suggest many investors viewed the correction as a buying opportunity after staying on the sidelines in recent months, according to Business Standard experts. Amit Bivalkar, head – wealth, Equirus Group, noted that investors have increasingly turned to precious metals as a safe haven amid volatile equity markets, geopolitical uncertainty and a weakening rupee. The decline was triggered by a stronger US dollar, rising US Treasury yields, and growing expectations that the US Federal Reserve would keep interest rates higher for longer. The easing of geopolitical tensions also reduced demand for safe-haven assets. Manish Bhandari, CEO and portfolio manager at Vallum Capital, explained that gold's problem right now is not its thesis but its timing, citing Warsh's ascension as incoming Fed chairman which has repriced consensus from two 2026 cuts to none, with the DXY climbing from 97.6 to 101.6.
As reported by Mint, experts advise against timing Gold ETF investments based solely on currency forecasts. Palve recommended limiting gold allocation to around 5% of an overall investment portfolio, noting that gold does not generate earnings like equities and requires monitoring of international gold prices, USD/INR exchange rate, US Federal Reserve policy, and central bank gold purchases. Vakil emphasized that while the rupee has historically depreciated gradually against the US dollar, currency should not be relied upon for investment timing, with investors also monitoring inflation, real interest rates, geopolitical developments, and ETF-specific metrics. The current market situation shows that people who want to buy gold now have more options than just going to jewelry stores, with Indian investors choosing between physical ornaments, digital apps, and government bonds. Gold ETFs (Digital) offer very safe storage in Demat with no physical metal needed, while Sovereign Gold Bonds provide 2.5% annual interest and government backing, making them safer alternatives during volatile market conditions.
