Global gold investment demand increased by 170% year-on-year in Q1 2025, led by significant gold ETF inflows, with holdings increasing by 226 tonnes to 3,445 tonnes. Central banks added 244 tonnes, while India’s ETF holdings also rose by 11%, despite a decline in jewellery demand due to high prices.
Global gold investment experienced a remarkable 170% year-on-year increase during the first quarter of 2025, primarily driven by substantial inflows into gold-backed Exchange Traded Funds (ETFs), as detailed in the May Alpha Strategist Report by Motilal Oswal Private Wealth.
The gold market saw an unprecedented boost in prices, hitting all-time highs amidst rising geopolitical tensions, trade wars, and a depreciating US dollar. Despite a slight increase in total supply, the surging prices resulted in a notable rise in the market’s overall value. The report attributes the surge to geopolitical tensions and a weakening US dollar, which collectively boosted gold’s market value by 40%.
Gold-backed ETFs expanded their holdings by 226 tonnes, pushing total holdings to 3,445 tonnes, underscoring gold’s strategic role amid global uncertainty. Investment demand experienced a significant 170% increase compared to the previous year, propelled by a robust resurgence in gold ETF inflows, especially in the regions of Europe, Asia, and India.
Europe led the ETF inflows with an addition of 55 tonnes, fuelled by expectations of further rate cuts by the European Central Bank. In Asia, a 34-tonne increase was largely driven by Chinese funds, which responded to escalating trade tensions with the United States. Additionally, Indian ETF gold holdings rose by 11%, reflecting a growing investor appetite for gold investments in the region. This trend highlights the increasing importance of gold as a hedge against economic uncertainties, particularly in emerging markets.
Central banks worldwide maintained their robust acquisition of gold, adding 244 tonnes to their reserves. This figure surpasses the five-year quarterly average by 24%, highlighting the ongoing confidence in gold as a hedge against economic instability. The Reserve Bank of India also increased its gold reserves by 0.6 tonnes in March, reaching a new peak of 879.6 tonnes, which now constitutes 11.7% of India’s foreign exchange reserves. This strategic accumulation underscores the central banks’ commitment to diversifying their reserves and reducing reliance on the US dollar.
Despite the positive trend in investment demand, gold jewellery demand in India faced challenges, experiencing a 25% drop in volume due to soaring gold prices. However, the value of jewellery demand did see a modest increase of 3% year-on-year. Consumers adapted by purchasing smaller or lighter pieces, or by trading in old jewellery for new, with 40-45% of purchases involving exchanges by the end of the quarter. The increased use of gold loans, where jewellery is pledged as collateral, also became more prevalent as consumers sought ways to leverage their assets.
The Motilal Oswal report suggests a significant shift in gold consumption patterns, as traditional gold purchases are increasingly pressured by high prices. However, the continued investment demand and central bank purchases are supporting gold’s role as a vital strategic asset during uncertain times.
According to Zerodha Mutual Fund, Gold ETF holdings in India have more than tripled in the past five years, jumping from approximately 21 tonnes to over 63 tonnes. This significant rise indicates a growing popularity of gold ETFs as an investment option among Indians, alongside traditional choices such as jewellery and physical gold.
Gold ETF holdings refer to the collective amount of gold held by the various Gold ETFs traded on Indian stock exchanges, indicating a heightened interest in gold as a dematerialized investment vehicle in the Indian market.
The number of Gold ETF folios has increased by more than 13 times from March 2020 to March 2025, providing investors with a convenient and efficient way to engage in the gold market without the need for physical storage, as stated in the release.
Gold ETFs are taxed in a manner comparable to equities when it comes to taxation. Long-term capital gains (LTCG) on Gold ETFs are taxed at a fixed rate of 12.5% after maintaining ownership for a period exceeding 12 months, while short-term capital gains (STCG) are taxed according to slab rates. Conversely, for Physical Gold, LTCG is taxed at 12.5% if held for over 24 months, with STCG being taxed based on slab rates.
