India Gold Prices Stable Despite Sell-off in ETFs

Gold prices in the domestic physical market held largely steady on Thursday, January 22, drawing support from earlier safe-haven buying and currency sensitivity. The cost of gold (24K) stood at ₹15,431 per gram on January 22.

This stability persisted even as gold exchange-traded funds (ETFs) corrected sharply, with several funds falling as much as 12% from recent highs after bullion touched peaks in the previous session.

The divergence between spot prices and financial products coincided with a shift in global risk sentiment. This could have led investors to rebalance portfolios rather than exit gold altogether.

Heavy Selling in ETFs

There was heavy selling in gold ETFs. Prices retreated sharply after the recent surge. The decline followed days of strong inflows and price gains as investors rushed into gold amid heightened geopolitical tensions.

According to analysts, profit-taking could be one reason for the drop in the prices of gold ETFs. Market participants noted that ETF flows tend to respond more quickly to changes in global sentiment than physical markets. It often leads to sharper swings.

Global Cues Trigger Sentiment Shift

The sell-off in gold-linked financial instruments came after US President Donald Trump's recent comments. Trump said he had stepped back from threats to impose new tariffs regarding Greenland.

He said he had reached preliminary agreement outlines with the North Atlantic Treaty Organization (NATO) during a meeting with NATO Secretary General Mark Rutte in Davos. Trump also announced that he would not impose tariffs that were earlier expected to take effect on February 1. The remarks reduced immediate fears around trade disruptions and geopolitical escalation.

Physical Gold Prices Hold Ground

Despite a drop in ETF prices, physical gold prices in India remained strong. Traders attributed this to a combination of factors. This includes residual safe-haven demand from earlier sessions, sensitivity to currency movements and sustained interest in precious metals as a portfolio hedge.

Market participants said domestic prices did not see the same degree of selling pressure as ETFs because physical demand tends to respond more slowly to short-term global developments. Jewellery demand, investment buying and hedging needs provided a base for prices even as financial investors booked profits.

Volatility Expected to Stay Elevated

Market participants said volatility in gold prices is likely to remain high in the near term due to various factors. These include political developments in major economies, movements in the US dollar and trends in domestic demand.

The recent swing highlights the sensitivity of gold prices to shifts in risk sentiment, particularly when prices are near record levels. Traders said short-term moves could remain sharp, especially in ETFs and other financial products, as investors respond quickly to global headlines. At the same time, the stability in physical prices suggests underlying support for gold remains.

What Does it Mean for Investors?

Analysts also opine that the current phase is more about portfolio rebalancing than a collapse in gold demand. For investors, the episode highlights the need to distinguish between short-term price corrections and the broader demand-supply dynamics.

Sources:

CNBC

Moneycontrol

IndianExpress