India cuts off the flow of money into gold

XAU/USD

Key zone: 4,150.00 - 4,200.00

Buy: 4,230.00 (on a pullback after retesting 4.180); target 4,500-4,650; StopLoss 4,150.00

Sell: 4,100.00 (against a strong negative fundamental backdrop); target 3,850.00; StopLoss 4,180.00

India is restricting capital inflows into gold funds in an attempt to ease pressure on the rupee and its external balance. But investment demand remains strong, and global ETFs continue buying the metal. Gold is caught between Indian restrictions and Federal Reserve policy.

A quick recap:

On October 16, gold is recovering after a correction. During the session, XAU/USD climbed to approximately $4,200.80, but the breakout has yet to be confirmed. Support came from a weaker dollar, declining U.S. Treasury yields, and instability in the technology sector of the stock market. Meanwhile, resistance around $4,235 remains an important obstacle for buyers. The market is also assessing the implications of the latest U.S. inflation data and the prospects for further monetary tightening.

A new source of uncertainty is the decision by Indian asset management companies to suspend subscriptions to funds of funds that invest in gold ETFs. The measure affects one of the world's largest physical gold markets and could change the structure of investment flows.

However, restricting an individual investment channel is not equivalent to reducing overall demand for gold. This distinction determines the potential impact of India's measures on global prices.

What Happened in India?

Starting October 16, Indian asset management companies stopped accepting new investments in gold Funds of Funds (FoF). According to market participants, the decision followed verbal (!) instructions from the Securities and Exchange Board of India (SEBI).

The restrictions apply to new lump-sum contributions, registrations of new systematic investment plans (SIP), systematic transfer plans (STP), and switches between funds. Existing investments are not subject to forced liquidation, while direct trading in gold ETFs on stock exchanges remains available.

This is critically important when assessing the market impact.

• FoFs allow retail investors to purchase units in a fund that allocates capital to gold ETFs. This two-tier structure provides convenient access to gold without requiring investors to trade directly on an exchange.
• When new contributions are suspended, asset managers lose one source of capital for additional ETF purchases. However, investors can redirect their funds directly into exchange-traded funds, physical gold, or other investment instruments.

Consequently, the regulatory measure may reduce demand through a specific financial channel, but its ultimate impact depends on investor behavior.

India's main challenge regarding gold investment lies in the combination of heavy import dependence, pressure on the national currency, and the economy's need for foreign capital.

India imports a substantial share of the gold it consumes. Therefore, increased purchases of the metal create additional demand for foreign currency and may worsen the trade balance.

The economic rationale behind SEBI's decision is an attempt to ease one channel of potential import-related and currency pressure without imposing a direct ban on gold investment.

At the same time, the physical market presented a more complex picture.

India is entering a period of elevated demand associated with religious festivals and the wedding season. The World Gold Council notes that wedding-related purchases remain resilient, although high prices are prompting consumers to switch to lighter jewelry.

According to World Gold Council estimates, India's gold imports fell to $2.3 billion in August — down 45% from July and 58% year over year. Physical import volumes were estimated at 15–20 tonnes, while gold's share of merchandise imports declined to 3%, compared with 9% a year earlier.

This reveals a significant contradiction: investment demand through ETFs was growing while actual gold imports were declining.

So What Is the Result?

According to Indian media reports, the new restrictions affected 17 asset management companies. Meanwhile, on October 16, prices of 25 Indian gold ETFs remained in positive territory, gaining between 0.06% and 0.78%.

International investment flows have not yet confirmed a large-scale retreat from gold.

For the global market, what matters more than the number of funds subject to restrictions is the change in physical ETF holdings, import volumes, and domestic market premiums over international prices.

Therefore, the Indian factor may intensify a local correction, but a sustained decline in XAU/USD would require a combination of weak investment demand, a stronger dollar, and rising real Treasury yields.

So we act wisely and avoid unnecessary risks.

Profits to y’all!