India's gold ETFs record first monthly outflow in a year

India’s gold exchange-traded funds (ETFs) recorded their first net monthly outflow in a year in May, as investors booked profits after a sharp rally in domestic prices.

According to World Gold Council data, gold ETFs saw net outflows of about $61 million (0.4 tonnes), taking total holdings down to 116.3 tonnes. Despite the monthly exit, inflows remain strong at $3.48 billion so far in 2026, suggesting the broader trend is still intact.

Why it happened: Duty hike, price spike, profit booking

The reversal in flows came shortly after the government raised import duties on gold and silver to 15% from 6% on May 13, aimed at curbing imports and easing pressure on foreign exchange reserves.

The move pushed domestic gold prices sharply higher, with rates touching ₹1.64 lakh per 10 grams — their highest in more than two months — prompting investors to lock in gains through ETFs.

What it means: Imports, rupee and demand shift

The moderation in ETF demand could gradually reduce gold import needs in the world’s second-largest consumer market, helping narrow the trade deficit and support the rupee.

India imports around 800 tonnes of gold annually, and a shift from physical gold to financial products such as ETFs could ease pressure on foreign exchange reserves over time.

However, financial gold still forms a relatively small share of total demand, limiting the immediate macro impact.

What’s happening in funds: Restrictions emerge

Amid strong demand and operational constraints, HDFC Mutual Fund has tightened subscriptions in its gold products.

Large direct investments of ₹25 crore and above in HDFC Gold ETF will not be accepted from June 8, 2026.

In the HDFC Gold ETF Fund of Fund, lump sum and switch-in investments will be capped at ₹10 lakh per PAN per month from June 5, 2026. The measures are temporary.

What next: Outlook remains supported

Satish Dondapati, ETF Fund Manager at Kotak Mutual Fund, say the higher import duty has structurally increased domestic gold prices and may accelerate the shift toward financial gold instruments.

Gold is expected to remain supported over the next 12 months, aided by geopolitical risks, currency weakness and global growth uncertainty. However, analysts caution that US bond yields and Federal Reserve policy will remain key global drivers of price direction.

-With Reuters inputs