Gold’s physical market is undergoing a notable shift. Domestic jewellery demand has softened, while investment demand—particularly through gold-backed exchange-traded funds (ETFs)—remains robust. Kunal Shah, Head of Commodity Research at Nirmal Bang, points to this divergence as a key signal for the market. The split between physical consumption and financial investment could influence how gold prices behave in the coming months.
The divergence in gold demand
Gold is traded globally in US dollars per troy ounce, with spot transactions occurring over the counter. Demand traditionally comes from two main channels: jewellery fabrication and investment (bars, coins, and ETFs). Currently, those channels are moving in opposite directions. According to Shah, jewellery demand is taking a back seat as high gold prices and shifting consumer sentiment curb buying. At the same time, ETF inflows remain encouraging, demonstrating that investors are still willing to allocate capital to gold despite the elevated price level.
Why jewellery demand is softening
Jewellery buyers tend to be price-sensitive. When the gold price rises sharply, discretionary purchases often slow. The current environment—with gold trading near multi-year highs—appears to be discouraging some consumers, particularly in domestic markets. Changing preferences, such as a move toward lighter or more affordable pieces, may also be playing a role. Shah notes that this weakness in physical demand could persist as long as prices stay elevated and sentiment remains cautious.
ETF demand holds the baton
In contrast, gold ETFs have continued to attract interest. These financial instruments allow investors to gain exposure to gold without holding physical metal. The resilience of ETF demand suggests that institutional and retail investors still view gold as a portfolio hedge, even as jewellery buyers step back. Shah emphasises that the growing importance of investment flows provides a support layer for the broader bullish outlook on gold. The divergence between physical and financial demand is therefore a factor worth watching for anyone tracking the live gold price.
Key takeaways
- Physical jewellery demand is weakening due to high gold prices and changing consumer sentiment.
- Gold ETF investment demand remains strong, providing support to the broader bullish outlook.
- The divergence between physical and financial demand could be a key factor for gold prices going forward.
- Analyst Kunal Shah of Nirmal Bang highlights the growing importance of investment flows over physical consumption.
Common questions
What is the difference between physical gold demand and ETF demand?
Physical gold demand refers to buying jewellery, bars, and coins. ETF demand involves investing in gold-backed exchange-traded funds, which represent ownership of gold held by the fund. The two can diverge based on investor sentiment and price levels. Currently, physical demand is soft while ETF demand is strong.
The shift in demand patterns does not signal a bearish turn for gold overall. Instead, it shows that the market’s centre of gravity is moving from jewellery counters to investment portfolios. How long that divergence lasts will depend on price trends and consumer behaviour, but for now, investment demand is doing the heavy lifting.