India's gold market is witnessing a fascinating dichotomy as surging prices impact consumer behavior. While overall gold demand is projected to fall, investment buying is experiencing a surge. This shift indicates a change in how Indian consumers are approaching the precious metal.
India's gold consumption is expected to drop to between 650 and 700 tonnes this year. This decline is primarily attributed to the sharp rise in gold prices, which has dampened the demand for gold jewelry. Higher prices and affordability concerns are weighing on consumption, particularly in the mid- and small-ticket segments that typically drive mass demand. Despite the ongoing wedding season, feedback from manufacturers and retailers suggests that gold jewelry volumes are lower compared to the previous year. The luxury segment remains strong, but it is not enough to compensate for the overall decrease in demand.
Even with record-high prices, investment buying in gold remains robust, with consumers showing a preference for lightweight 22-carat jewelry and bars. In the third quarter of 2025, Indian investors purchased a record $10 billion worth of gold. Investor interest in gold ETFs (Exchange Traded Funds) continues to strengthen, demonstrated by sustained inflows and increased investor participation. Cumulative net inflows into Indian gold ETFs reached a record INR313 billion (US$3.6 billion) between January and November 2025, with holdings rising by 28.6 tonnes – the highest annual addition on record. The number of investor accounts (folios) has also seen a significant increase, with 3.4 million new accounts added during the same period, representing a 152% year-on-year increase and bringing the total to 9.8 million.
Several factors have contributed to the surge in gold prices. International gold prices have experienced a sharp rally, with domestic prices mirroring this trajectory but outperforming due to a 5.6% depreciation in the Indian Rupee. A weakening US dollar, ongoing geopolitical tensions, and gold ETF inflows have further supported the rally. Expectations of accommodative US monetary policy and potential interest rate cuts by the Bank of England are also influencing bullion prices.
Despite the overall decline in gold demand, the Reserve Bank of India's (RBI) gold holdings stand at a record 880.2 tonnes. Although the central bank's gold accumulation has slowed down this year, gold's share in India's foreign exchange reserves has risen from 10% to 15.6% year-on-year, primarily due to higher gold prices and the growing valuation impact of gold within the reserve's portfolio.
Looking ahead, while seasonal purchases related to festivals and weddings may provide a boost, total physical gold demand in India for 2025 is projected to be between 600 and 700 tons. This would be the lowest level since 2020 and significantly lower than the 802.8 tons recorded last year. The divergence between investment demand and jewelry demand is expected to continue, highlighting the changing dynamics of India's gold market.
