Has The Import Duty Hike Hurt Gold ETF Demand? May Data Suggests It May Have

Gold has traditionally been a core part of household savings in India, but that stability appeared to weaken in May 2026. Gold Exchange Traded Funds (ETFs) in India recorded net outflows of Rs 725.04 crore during the month, according to data from the Association of Mutual Funds in India (Amfi). This is the first time in 12 months that Gold ETFs has seen monthly outflows, ending a consistent run of inflows that had held through much of the recent rally in gold.

A month earlier, Gold ETFs saw inflows of Rs 3,040.31 crore, continuing a broader easing trend after a strong start to the year. Inflows had come in at Rs 2,265.68 crore in March and Rs 5,254.95 crore in February, after a record Rs 24,039.96 crore in January.

According to the World Gold Council (WGC), Gold ETFs in India saw outflows of $61 million in May. India’s Gold ETF holdings stood at 116.3 tonnes, a 0.4 per cent month-on-month decline in demand.

Import Duty Hike Or Profit Booking, Or Both

The decline in Gold ETF inflows came after the government increased the import duty on gold and silver to 15 per cent from 6 per cent earlier. The revised structure, which came into effect from May 13, now includes a 10 per cent basic customs duty (BCD) and a 5 per cent agriculture infrastructure and development cess (AIDC). Earlier, imports were taxed at 5 per cent BCD and 1 per cent AIDC, which took the effective import duty to 6 per cent. This had come shortly after Prime Minister Narendra Modi urged citizens to avoid buying gold for a year.

The higher duty appears to have had an immediate impact on investor sentiment. The WGC noted that, “The majority of May’s losses occurred after the announcement of the import duty increase, as investors took profit on the rising domestic gold price."

Analysts however, do not see the outflows as a sign of weakening confidence in gold.

Chetan Kukreja, chief of passive research at Motilal Oswal AMC, said investors were largely booking profits after the sharp run-up in prices. “Investors are simply rebalancing portfolios to lock in capital gains after hitting target returns. While higher duties structurally increase the landed cost of the underlying bullion impacting  valuation, the long-term appeal of gold as a strategic hedge remains intact despite short-term tactical withdrawals,” he said.

Mirroring his view, Nitin Agrawal, CEO of Mutual Funds at InCred Money, said, “This is not a bearish signal on gold; it reflects profit-booking after a sharp price run-up. The structural case for a measured gold allocation in retail portfolios remains intact.”

The profit-booking argument gains weight when viewed against gold's extraordinary rally over the past year. Domestic gold prices surged more than 68 per cent in FY26, turning the yellow metal into one of the best-performing asset classes during the period.

As of June 10, gold was trading near Rs 1.49 lakh per 10 grams on the Multi Commodity Exchange (MCX). Prices have cooled considerably from the record highs seen earlier this year. On January 29, MCX gold had crossed the Rs 2 lakh mark for the first time. Since then, prices have corrected by more than 25 per cent, offering some relief after a blistering rally.

Gold demand in India has remained strong, led by a strong rally in prices at home and abroad. Weak and uneven equity market returns over the past year also pushed investors toward the safe haven gold. Data from the Ministry of Commerce and Industry shows India imported gold worth Rs 6.39 lakh crore in FY26, up 30.58 per cent from FY25.

Why The Government Is Discouraging Gold Imports

India imports almost all of its gold demand. That makes it a structurally import-heavy commodity, and every increase in domestic demand directly translates into higher dollar outflows.

This is the core reason policymakers have consistently sought to restrain gold imports. The objective is to curb pressure on foreign exchange reserves, support the rupee, and keep the current account deficit within manageable limits.

Gold accounted for about 9.30 per cent of total merchandise imports India made in FY26, so even small swings in demand can materially impact the current account deficit, forex outflows, and rupee stability.

Higher import duties are one of the key tools used to manage this. By raising the landed cost of gold, the government effectively makes buying more expensive. The intent is to curb discretionary purchases, cool jewellery demand, and discourage import-driven speculative buying.

At a macro level, if India imports less gold, fewer dollars leave the country. That eases pressure on the rupee and helps stabilise external balances over time.

The push to discourage gold buying has come at a time when the rupee was already under pressure, having depreciated by over 7 per cent year-to-date. The currency is currently trading around the 95 level against the dollar.