India’s gold market in February: Indian imports hit a 21-month high amid robust retail demand



  • The domestic gold price ended 5.6% lower in February at Rs46,425/10g1
  • A lower domestic gold price and wedding season purchases boosted retail demand during the month
  • Indian official imports hit a 21-month high and the local market premium further strengthened
  • The lower gold price and high stock market volatility led to ETF inflows. Total holdings for Indian gold ETFs reached 30.2t by the end of February; a net inflow of 1.1t
  • The Reserve Bank of India (RBI) added 11.2t of gold to its reserves during the month taking its total gold reserves to 687.8t.


Gold prices corrected in February

With better US employment data and the rollout of COVID-19 vaccines, expectations of a global economic recovery and higher inflation increased. Government bond yields rose rapidly across the world, pushing down the international gold price and, as a result, both the MCX Gold Spot and LBMA Gold Price AM fell during the month (Chart 1).2


Chart 1: Gold prices fell in February

Domestic gold price in rupees vs LBMA Gold Price AM in US dollars


* We compare the LBMA Gold Price AM with the MCX Gold Spot Price as their trading hours are closer to each other than the most commonly referenced LBMA Gold Price PM
Source: Bloomberg, ICE Benchmark Association, World Gold Council


Rising bond yields curtailed gains in the BSE Sensex

The BSE Sensex gained 5% on 1 February on the back of the Union Budget announcement of no change in tax rates and a focus on growth and spending. This positive sentiment continued throughout the first half of the month, further supported by an accommodative stance from the RBI during its bi-monthly monetary policy meeting and an expectation of a recovery in the global market. By mid-month, the BSE Sensex had risen by 12.7%. However, increased concerns over rising bond yields and a sudden increase in COVID-19 cases in a few states dampened investor sentiment, leading to a 6.6% drop in the last two weeks of February. Overall, the BSE Sensex ended the month with 6.1% growth (Chart 2).


Chart 2: Rising US treasury yield curtailed gains in BSE Sensex


Source: Bloomberg, World Gold Council


Retail inflation jumped to a three-month high

Retail inflation (CPI) rose to a three-month high of 5.03% in February from 4.06% in January due to higher crude oil prices (Chart 3). Having cut the repo rate by 115 bps from last March to sustain the economy during the COVID-19 pandemic, the RBI may now have to tackle the challenges of increasing inflation and rising bond yields.


Chart 3: India's retail inflation climbed to three-month high in February

India's CPI % change y-o-y vs core CPI % change y-o-y


*Core CPI change excludes temporary price volatility as in the case of food items, energy products etc.
Source: Bloomberg, World Gold Council


Retail demand was robust in the month

Anecdotal evidence suggests that retail demand was robust in the month supported by the following factors:

  • The domestic gold price corrected, due to a combination of a lower international gold price, the reduction in import duty on gold and an appreciating rupee. As a result, the MCX Gold Spot price decreased by 5.6% m-o-m compared to a 4.7% decrease in the LBMA Gold Price AM
  • Consumers took advantage of lower gold prices to purchase wedding jewellery
  • This correction in the domestic gold price provided a welcome entry point for retail investors too. Retail demand for small gold bars (50g and 100g denominations) and coins gained strength in February.


Indian official imports hit a 21-month high

Indian official gold imports totalled 91t in February 2021 – 103% higher y-o-y and 36.5% higher m-o-m (Chart 4). We believe that robust retail demand driven by the lower gold price and wedding demand, along with re-stocking by jewellery manufacturers and retailers, drove official imports during the month. A total of 11 banks, nominated agencies and exporters imported 77.1t of bullion and 19 refineries imported 13.9t of gold doré (fine gold content). From a total 91t of official imports, 35.3t was imported via the Sri City Free Trade Warehousing Zone (FTWZ).3 Eight overseas banks accounted for these imports with JP Morgan, ANZ, Rand Merchant Bank and Standard Chartered accounting for 81%.


Chart 4: Indian imports hit a 21-month high in February 2021


Source: Infodrive India, Ministry of Commerce & Industry Govt. of India, World Gold Council


Local market premium further strengthened in the month

With a significant pick-up in retail demand, the monthly average premium in February jumped to US$3.3/oz compared to an average of US$0.6/oz in January. The local premium rose to ~US$5.5/oz by mid-month before moderating to US$4/oz by end of the month (Chart 5).


Chart 5: Local market premium strengthened in the month


Source: NCDEX, World Gold Council


Gold ETFs continued to attract inflows in February

Anecdotal evidence suggests that the lower domestic gold price provided a welcome entry point for investors. Stock market volatility, as measured by the National Stock Exchange VIX (NSE VIX) Index, increased in February amid bond sell-offs and this further supported inflows in gold ETFs. Inflows into Indian gold ETFs increased by 1.1t ( Rs 4.91bn; US$71.5mn) in February, taking total gold ETFs to 30.2t (Chart 6).


Chart 6: Indian Gold ETF holdings reached 30.2t by the end of the month


Source: Respective ETF providers, Bloomberg, World Gold Council


The RBI added 11.2t of gold reserves in February 2021

After making no purchases during January, the RBI added 11.2t of gold to its reserves in February taking its gold reserves to 687.8t, or 6.6% of total reserves (Chart 7).4 This latest purchase is the highest monthly total on record.5 The RBI has stepped up its gold purchases over recent years with the aim of diversifying its foreign reserves and maintaining the safety and liquidity of its forex reserves.


Chart 7: RBI added 11.2t of gold to its reserves in February


Source: IMF, RBI, World Gold Council



1Domestic gold price refers to MCX Gold Spot price

2We compare the LBMA Gold Price AM with MCX Gold Spot price as their trading hours are closer to each other than the most commonly referenced LBMA Gold Price PM.

3FTWZ offers a distinct advantage as overseas suppliers can import gold into the custom-bonded warehouse of FTWZ without paying customs duty for authorised operations. Imported gold can be stored in FTWZ for a long period – as long as the letter of approval (LOA) is valid – thus reducing the logistics time in supplying to the domestic market as compared to importing from the overseas market.

4Central Bank data is taken from IMF-IFS; IFS up until January and weekly statistics from the RBI for February. Please refer to our latest Central Bank Statistics

5The RBI commenced its monthly purchases in December 2017. Prior to December 2017, RBI made a single purchase of 200t from IMF in November 2009 to boost its reserves