Whalesbook
Record Q1 Inflows Fueled by Geopolitics, March Sees Slowdown
Gold Exchange Traded Funds (ETFs) in India ended the March 2026 quarter with inflows of ₹31,561 crore, nearly six times the ₹5,654 crore recorded in the same period last year. This surge was largely driven by geopolitical tensions, especially in the Middle East, pushing investors towards gold as a safe-haven asset. The strong performance followed a robust January, which alone attracted ₹24,040 crore in inflows, reflecting higher risk aversion and portfolio adjustments.
March Moderation as Equities Gain Traction
However, momentum slowed considerably in March, with net inflows dropping to ₹2,266 crore, down from ₹5,255 crore in February. Analysts attribute this slowdown partly to a normalization after a very strong start to the year. Equities also began looking more attractive, prompting investors to shift strategies. This coincided with a sharp price correction in gold during March, which fell about 11% globally and 7% domestically, reducing immediate investor interest.
Global Trends Show Regional Differences, Gold Remains Key Diversifier
Despite the March slowdown, overall investor interest in gold products remained positive, with gold ETFs seeing inflows for a seventh straight quarter globally. Global flows, however, showed regional differences. Asia, led by China, saw strong inflows due to safe-haven demand amid geopolitical risks and falling local stock markets. North America, however, experienced record outflows of US$13 billion in March, reversing a nine-month inflow trend. This indicates that while geopolitical risks were widespread, investor responses and portfolio shifts differed by region. Indian investors continued to add to their gold ETF holdings, supporting demand.
Analyst View: Gold as Hedge and Diversifier
Nehal Meshram, Senior Analyst at Morningstar Investment Research India, noted that March's positive inflows show gold's continued appeal as both a hedge against market uncertainty and a strategic portfolio diversifier. This reflects a long-term view on gold's diversification benefits, extending beyond short-term reactions to geopolitical events.
Gold Price Drops as Equities Rally; Investors Rebalance
Gold's sharp price correction in March, driven by a stronger US dollar and rising Treasury yields, occurred alongside a significant rebound in equity markets. Equity mutual funds attracted their strongest monthly inflows since July 2025, totaling ₹40,450 crore in March, a 56% jump from February. This strong equity performance, fueled by year-end allocations and opportunistic buying, signals renewed investor optimism. The contrasting performance of gold ETFs and equity funds highlights a dynamic market where investors actively rebalance portfolios based on changing risk and reward perceptions. Although gold ETF Assets Under Management (AUM) fell from ₹1.79 lakh crore to ₹1.71 lakh crore in March due to price drops, sustained inflows suggest many investors used the dip as an opportunity to buy.
Macro Factors and Competition from Equities Shape Gold's Appeal
Macroeconomic factors continue to influence gold's appeal beyond immediate geopolitical events. Markets are now more cautious about Federal Reserve rate cuts for 2026, partly due to inflation fears from energy price shocks. This environment, along with a stronger US dollar, typically pressures assets like gold that do not pay interest. Overall, commodities surged 24.23% in March, with gold contributing despite its own price fall. Managed futures also performed well, while equities and bonds saw pullbacks. The growing preference for equities, evident in strong fund inflows, directly competes with gold ETF allocations.
Signs of Weakness: Liquidity and Shifting Sentiment Hit Gold
The March price pullback in gold, even with ongoing geopolitical tensions, suggests underlying liquidity pressures and potentially crowded investor positions. Global gold ETF holdings reportedly decreased by around 63 tonnes in March, indicating weakening investor sentiment and a move to raise liquidity. Central bank buying, a key support for gold, has also reportedly slowed, raising questions about official demand at higher prices. Additionally, attractive equity valuations and strong market performance in March suggest a potential shift away from safe havens if inflation fears ease or interest rates stabilize. Conflicting signals arise from gold's inflation hedge narrative versus concerns about potential Fed rate hikes. The significant outflows from North American ETFs in March underscore the risk of tactical profit-taking and portfolio repositioning when broader market conditions change.