Gold ETFs See First Outflow In A Year After PM Modi Urges Curb On Gold Purchases

India's gold exchange-traded funds (ETFs) experienced their first net outflows in over a year in May, shedding Rs 725 crore, as investors cashed in on record prices. This significant reversal, following a year of consistent inflows, comes swiftly on the heels of Prime Minister Narendra Modi appeal on May 11, 2026, for citizens to curb non-essential gold purchases and a sharp hike in gold import duties just two days later. The government's aggressive measures, which saw import duties on gold and silver jump from 6% to 15% on May 13, 2026, are a direct response to mounting pressure on India's foreign exchange reserves and a widening current account deficit. Gold, deeply entrenched in Indian culture as both a symbol of prosperity and a crucial savings instrument, particularly in rural areas, remains one of the nation's largest non-productive imports, alongside crude oil. This policy shift aims to staunch the outflow of valuable U.S. dollars and stabilize the Indian Rupee amid ongoing global economic uncertainties and the lingering impact of the West Asia conflict on oil prices. With domestic gold prices currently hovering near record highs of approximately Rs 1.5 lakh per 10 grams, the World Gold Council projects India's overall gold demand to decline by 10% in 2026. While jewellery demand, though softening, remains resilient due to cultural events, investment demand, previously boosted by strong Q1 inflows into ETFs and Sovereign Gold Bonds (SGBs), appears more sensitive to these duty changes and profit-booking pressures. Observers will be watching for the potential rise of unofficial gold inflows as a consequence of the increased duties and the government's continued efforts to balance cultural affinity with macroeconomic stability.