Gold imports tumble 39% in May after duty hike; ETFs see first outflows in over a year: WGC

Gold imports declined 39 per cent month-on-month to USD 3.4 billion in May, although they were still 34 per cent higher compared to the same period last year.

The government increased the import duty on gold by 9 percentage points on May 13 to save forex, marking the steepest hike on record, along with broader regulatory measures.

"In volume terms, we estimate imports to be in the range of 25-30t, notably lower than April's 46t and the two-year average of 59t, reflecting a moderation in import volume as the higher duty structure took effect," the WGC report said.

Gold accounted for around 5 per cent of total merchandise imports in May, down from 14 per cent recorded during January-February, indicating a moderation in demand.

The report also noted that domestic gold exchange-traded funds (ETFs) witnessed their first monthly net outflow since April 2025, with outflows amounting to Rs 7.25 billion (USD 76 million). Gross redemptions rose to a record Rs 33.30 billion (USD 348 million).

According to the report, selling pressure intensified after the duty hike in mid-May. The increase pushed domestic gold prices up by nearly 6 per cent, encouraging investors to book profits. As a result, 134,343 active investor accounts were closed, marking the steepest monthly decline in folio data on record.

Despite the outflows, domestic gold holdings remained stable at 116.5 tonnes, while total assets under management (AUM) stood at Rs 1,846 billion (USD 19.3 billion).

The report said institutional and wealthy investors continued to dominate gold ETF investments. Data from the Association of Mutual Funds in India (AMFI) showed that as of March 2026, corporates held 58 per cent of gold ETF AUM, followed by high-net-worth individuals at 31 per cent and retail investors at 11 per cent.

Several fund houses also introduced temporary investment limits. Direct subscriptions to gold ETFs have been capped at Rs 25 crore, while lump-sum investments in gold ETF fund-of-funds have been restricted to Rs 10 lakh per PAN per calendar month.

The WGC report said that while fund houses cited prevailing market and economic conditions, "these measures come amid broader concerns around gold imports, external balances, currency pressures, and the Prime Minister's appeal to consumers to curtail their gold buying."

"Given that large investors account for a sizeable proportion of AUM, the cap on investment could limit inflows into fund houses to some extent, although they can continue to buy from the secondary market where authorised participants and market makers continue to operate and provide liquidity," the report added.

Meanwhile, the gold market saw some moderation in returns. By June 15, international and domestic gold prices had fallen 4.2 per cent and 3.7 per cent, respectively, from their end-May levels.

However, on a year-to-date basis, domestic gold prices rose around 13.2 per cent, while international prices remained largely flat. The report attributed the difference to the 9 per cent import duty hike and a 5.3 per cent depreciation of the Indian rupee against the US dollar.

The report observed that elevated inflation concerns have led to expectations that "major central banks will tighten their monetary policy; this has raised the opportunity cost of holding gold and pressured its recent performance."

It further noted that improved investor risk sentiment and ETF outflows have "weighed on investment demand too, contributing to the recent softening in prices."

Despite the May outflows, gold ETFs recorded a strong recovery in early June, attracting net inflows of Rs 16.31 billion (USD 171 million) between June 1 and June 11, reflecting continued investor interest in the precious metal despite regulatory changes and market volatility. (ANI)