Divergent Trends in India's Gold Market

India's gold market is displaying a complex picture of consumer and investor behavior, marked by price volatility that affected physical gold purchases in March. While this volatility impacted immediate buying decisions, the performance of the retail jewelry sector and the continued expansion of gold ETF holdings reveal deeper trends.

Jewelers Shine Amid ETF Outflows

Demand for physical gold in India softened in early March. This was due to seasonal factors, the end of the financial year, and significant price swings that made buyers wait. Demand saw a slight pickup around regional festivals as prices eased, but overall remained quiet.

Yet, this quiet demand for physical gold contrasted sharply with the performance of listed jewelry retailers. They reported strong first-quarter 2026 revenues, with growth ranging from 32% to an impressive 124% year-on-year. This surge was driven by a busy wedding season, steady consumer spending on non-essentials, and larger average purchase values. Sales of plain gold jewelry and coins were particularly strong. Online sales also boosted growth, with some jewelers seeing their digital revenues more than quadruple.

Meanwhile, Indian gold Exchange Traded Funds (ETFs) continued their inflow streak into March 2026, adding INR 22.7 billion (US$244 million). However, this marked the slowest monthly inflow in seven months. The slowdown was largely due to record redemptions of INR 31.6 billion (US$341 million), as investors took profits after earlier price rallies. Despite these redemptions, total gold holdings in ETFs grew to 115 tonnes by the end of March. The total assets under management (AUM) for gold funds nearly tripled year-on-year to ₹1.71 lakh crore, and investor accounts (folios) increased to 12.39 million, showing sustained interest.

Retailers Expand Despite Challenges

Jewelers are pursuing growth by expanding their store presence. During the quarter, companies added between 7 to 38 new outlets, although some expansion efforts faced delays due to geopolitical supply disruptions. This expansion signals strong confidence in future demand.

Market valuations reflect differing views on these companies. Titan Company, for instance, trades at a high P/E ratio of about 83-84 and a market cap near ₹4 trillion, indicating high growth expectations. Kalyan Jewellers, by comparison, has a P/E of 37-40 and a market cap around ₹440 billion, suggesting a more moderate valuation.

The strong performance in plain gold jewelry and coins, combined with the rise of digital sales, shows the sector's adaptability. This aligns with India's tradition of demand from mid- and small-ticket purchases, a segment that can be pressured by high prices. The industry also manages inventory challenges linked to fluctuating gold prices and gold metal loans (GML).

Potential Headwinds for Gold

Despite strong retail sales and ongoing ETF inflows, risks remain for gold. The significant ETF redemptions highlight that some investors are taking profits. This could lead to more price swings if market sentiment changes, especially if stocks offer better returns.

Analysts observed that in March, equities became relatively more attractive, leading some investors to reduce new allocations to gold ETFs. The high P/E ratios for jewelers like Titan Company might also indicate stretched valuations, making them vulnerable if growth targets aren't met.

Geopolitical supply disruptions, which have affected store openings, could also impact inventory and operations more broadly. A key concern is the historical sensitivity of Indian gold demand to sharp price increases. Another price spike could slow jewelry sales and reduce investor interest. Even with gold's cultural importance, high prices can limit sales volumes, particularly in rural areas.

Outlook for Gold Demand

Looking forward, demand for gold is expected to receive a boost from the summer wedding season and upcoming festivals like Akshaya Tritiya. Price stability is anticipated to be crucial for increased consumer interest.

Analysts remain positive about gold prices in 2026, citing potential appreciation driven by ongoing geopolitical risks, central bank purchases, and global interest rate shifts.

The convenience and accessibility of gold ETFs are likely to drive their continued popularity. Investors increasingly see gold as a strategic hedge against economic uncertainty and currency fluctuations. This shift towards digital gold investment tools like ETFs represents a lasting change in Indian buying habits.