Gold ETF inflows drop 78% after record January. Should investors worry? Explained

After hitting a record ₹24,040 crore in inflows last month, the investment in gold ETFs moderated sharply in February, according to the latest data from the Association of Mutual Funds in India (AMFI).

The data released by AMFI yesterday highlighted that gold ETF inflows, albeit strong at ₹5,255 crore, were sharply 78% down on a month-on-month (MoM) basis, coinciding with the decline in the gold prices in India and internationally.

Why did gold ETF inflows fall?

The sharp moderation in gold ETF inflows appears less dramatic when viewed in context. Analysts say February’s decline largely reflects a normalisation after January’s unusually strong inflows, which were boosted by start-of-year portfolio allocations, defensive positioning and record-high gold prices.

Market veteran Sunil Subramaniam said the slowdown is not a rejection of gold as an asset class, but a natural cooling after an exceptional month. “The perceived slump is magnified because January was an anomaly. February was just a return to a more sustainable pace after a historic surge," he said.

Part of the pullback also reflects profit-booking after the sharp rally in MCX gold prices, which surged above ₹1.9 lakh per 10 grams earlier in the year.

Meanwhile, some investors used the early February correction — when gold prices slipped toward ₹1.51–1.60 lakh — to lock in gains, noted Subramaniam.

According to Nehal Meshram of Morningstar Investment Research India, January’s strong inflows were also driven by start-of-year portfolio rebalancing, making February’s numbers appear weaker on a sequential basis.

A further factor could be a gradual shift in risk appetite, with equities beginning to regain traction. Nitin Agrawal of InCred Money said the moderation suggests that some of the defensive allocations seen in January are unwinding as investors rotate back toward equities for long-term growth.

Should you invest in gold ETFs?

Since its decline to ₹160,000 levels, MCX gold prices have remained rangebound. The latest crisis in the Middle East also failed to provide any meaningful upside for investors holding the yellow metal.

Nevertheless, Meshram said that gold’s enduring appeal amid heightened market volatility and ongoing geopolitical risks underscores the need to invest in the precious metal.

"Gold ETFs continue to benefit from their role as portfolio diversifiers and their convenience, liquidity, and transparency as a means of gaining exposure to the metal. The trend indicates that gold is increasingly being utilised not just for tactical purposes but also as a strategic component in investor portfolios," she opined.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.