India's Gold Discount Nearly Vanishes as Funds Keep Buying, but the Fed Still Holds the Reins

India's domestic gold market is tightening just as the country's buying season gets under way. The average discount to import parity stood at $66 per troy ounce in September; by Friday it had narrowed to just $8, according to World Gold Council figures released today. That compression points to firmer local demand ahead of the festival and wedding season — a first sign of strength rather than proof of a broad revival.

Manufacturers reported healthy orders and dealers have been rebuilding stock, the WGC said. Yet the market is not short of metal. The lingering — if shrinking — discount signals ample domestic supply, with industry feedback pointing to scrap gold and unofficial inflows adding to availability. More orders are a positive demand signal; they do not, on their own, translate into upward pressure on prices.

Indian funds extend a strong run

Exchange-traded products tell a related but distinct story. Indian gold ETFs drew an estimated net 17.22 billion rupees in the first half of October, equal to roughly 1.2 tonnes. The estimate suggests appetite has carried over from a blockbuster September, when the same funds took in 44.5 billion rupees — their largest inflow in seven months.

China offers a parallel. Chinese gold ETFs added 11 tonnes in September, lifting holdings to a record 304 tonnes at month-end, underscoring that demand for listed gold products is not an India-only phenomenon. Worldwide, physically backed gold ETFs attracted net inflows of $10 billion in September, the WGC reported on 7 October, pushing total holdings to 4,256 tonnes.

Those purchases did not stop gold from falling in September. The WGC attributed the decline to higher US Treasury yields, a stronger dollar and reduced positioning in futures markets — a reminder that investment flows and seasonal orders cannot always offset monetary headwinds.

Oil, inflation and the rate question

The immediate pressure has come from energy. Reuters linked yesterday's pullback to rising crude prices, which fanned inflation worries and with them expectations of further US rate hikes. Spot gold settled at $4,122.23 per troy ounce. The swing has been swift: on Monday, falling oil prices had eased inflation concerns and supported the metal, Reuters reported. What matters for bullion right now is not demand alone but how the market reads the path of US rates.

Attention now turns to the Federal Reserve's Open Market Committee meeting on 27–28 October, with the rate decision scheduled for 28 October. Investors will be watching closely for any signal on a possible December hike, according to Ricardo Evangelista, head of ActivTrades, as cited by Reuters. The US PCE inflation gauge due next week adds a second input that could reset rate expectations.

Positive demand news from Asia and uncertainty over US policy therefore sit side by side. The latest data strengthen the case for gold demand without diminishing the weight of the coming rate decision. For a sustained relief rally, the key remains whether upcoming US data and Fed communication soften expectations of further tightening.