India's gold market, the world's second-largest behind China, is showing signs of recovery after facing significant headwinds over the past two months. Gold is deeply embedded in Indian household savings and culture — bought for weddings, festivals, and as a store of value — and jewelry accounts for the largest share of the country's demand, which is why shifts in Indian buying matter well beyond the domestic market.

After a sharp correction in June, domestic gold prices stabilized in July and began recovering in early August. In rupee terms, gold gained about 7 percent through the first two weeks of the month, while international gold prices rose about 9 percent over the same period, with rupee strength offsetting part of that increase — international gold is priced in U.S. dollars, so a stronger rupee trims the local-currency gain for Indian buyers.

According to the World Gold Council (WGC), "Shifting monetary policy expectations, a weaker U.S. dollar, and renewed inflows into gold ETFs supported gold prices, contributing to the recent recovery in the gold market."

Discounts Narrow as Supply Stays Ample

Despite the price recovery, gold is still selling at a modest discount in India, indicating ample supply. Indian prices generally track international prices plus import duties and taxes, and dealers sell below those levels when local supply outpaces buying. The WGC notes that the exchange of old gold jewelry for new has protected supply. Even so, the discount has narrowed from as high as $100 per ounce in mid-May and early June to around $45 in mid-August.

Gold imports rose in July after two straight weak months, signaling stronger demand. Imports doubled, climbing from 20 tonnes in June to an estimated 40-45 tonnes in July. Because India mines only a small amount of gold domestically, imports meet nearly all of the country's requirements, making monthly shipment data a closely watched gauge of underlying consumption. Gold is also a significant component of India's import bill, so swings in shipments feed into the country's trade balance.

Jewelry Demand Improves

Last year's surging gold price created significant headwinds for the Indian gold jewelry market. With the price moderately lower, the World Gold Council reported that jewelry demand has improved.

"Industry feedback suggests that deferred purchases returned to the market, resulting in higher footfall and a recovery in demand beyond essential wedding-related purchases," the WGC said. "Manufacturers have reportedly begun receiving higher order flows, and inventory replenishment by jewelers has picked up ahead of the festive season, suggesting growing confidence in seasonal demand."

Physical gold investment demand eased after the recent correction but remained robust enough to support the market. According to WGC analysis, "Lower prices continued to attract investors seeking strategic exposure to gold, while the recent rebound appears to have revived interest."

ETF Holdings and Trading Volumes Rise

ETF flows also signal resilient investment demand. Gold holdings by funds based in India increased by 1 tonne, valued at ₹15.6 billion ($163 million). Indian ETFs currently hold 120 tonnes of gold, with assets under management (AUM) totaling ₹1,733 billion ($18.1 billion).

ETF investor participation increased by 57,000 new portfolios, raising the total number of Indian ETF accounts to 12.53 million. ETFs are a convenient way for investors to access the gold market, but owning ETF shares is not the same as holding physical gold.

Trading volumes picked up in July as well, with volumes on the Multi Commodity Exchange of India (MCX India), the country's largest commodity derivatives exchange, rising to 14.9 tonnes, up from an average of 13.5 tonnes over the previous three months.

Festival Season Outlook

Looking ahead, World Gold Council analysts say demand appears to be improving, raising expectations for a stronger festival season. The season builds through the autumn toward Diwali and Dhanteras — a day considered especially auspicious for gold purchases — and runs into the winter wedding season, traditionally the strongest stretch of the year for Indian jewelry sales.

Import volumes and the spread between local and global prices will be among the indicators watched as the season unfolds, offering further evidence of whether the demand recovery is taking hold.

"While elevated prices may continue to influence jewelry purchases, investment demand remains supportive," the analysts said.