Since gold is priced globally in US dollars but in India are valued in rupees, fluctuations in the rupee-dollar exchange rate can significantly influence returns.
So, let’s take a look at what experts have to say about the impact of rupee movements on gold ETF returns.
How does rupee movement impact gold ETF returns?
Gaurav Arora, Head of Research, Sahi, said, “When you invest in a Gold ETF in India, you’re making two bets simultaneously—one on gold and one on the .”
He illustrated the impact with an example. Suppose international gold prices remain unchanged at around $4,067 per ounce over the next two months. An investor buying gold in the US would earn no return because the dollar price has not moved.
However, if the rupee weakens from ₹94.30 to ₹98 per US dollar during the same period, the domestic value of one ounce of gold would rise from ₹3,81,915 to ₹3,96,900. That translates into a gain of nearly 3.9% for an Indian Gold ETF investor, even though global gold prices remained flat.
The reverse can also happen. If international gold prices rise 6% to around $4,311 per ounce, but the rupee simultaneously appreciates from ₹94.30 to ₹90 per dollar, the domestic gold price would increase from ₹3,81,915 to ₹3,87,990, resulting in a gain of just about 1.5% despite the strong rally in global gold.
“This is why Indian Gold ETF investors have historically earned returns that look meaningfully different from what global gold performance alone would suggest,” Arora explained.
Rupee depreciation acts as a tailwind
India imports most of its gold, making domestic prices highly sensitive to movements.
Says Devarsh Vakil, Head of Prime Research, HDFC Securities, “Because India imports the majority of its gold, the commodity is denominated internationally in US dollars and then converted into Indian rupees to calculate the domestic gold prices and then the Net Asset Value (NAV) of domestic Gold ETFs.”
Vakil pointed out that while global gold prices have risen substantially over the past two decades, returns for Indian investors have been significantly higher because of the steady depreciation of the rupee and changes in import duties.
“During periods of global stress, investors often buy both gold and US dollars. At the same time, the rupee has often weakened in such periods. That combination can amplify returns on Indian Gold ETFs when other assets are struggling,” Vakil mentioned.
Meanwhile, Karan Aggarwal, Co-Founder & CIO, Ametra PMS, said, “As gold is priced globally in US dollars, it serves as a natural hedge against currency depreciation and improves the return potential for Gold ETFs. Traditionally, INR depreciation has added around 3% annually to investors’ returns.”
A stronger rupee can reduce gains
While a depreciating rupee benefits gold ETF investors, the opposite is also true.
Hrishikesh Palve, Director at Anand Rathi Wealth, explained that “a strengthening rupee can moderate gold returns, even when global gold prices remain unchanged.”
Should investors consider currency movements while investing in gold ETFs?
Despite the impact of exchange rates, experts advise investors against timing Gold ETF investments based on currency forecasts alone.
Palve said, “Gold does not generate earnings like equities or regular cash flows like fixed-income investments. Its returns are primarily driven by macroeconomic conditions and investor sentiment.”
He recommended limiting gold allocation to around 5% of an overall investment portfolio.
Vakil echoed a similar view. “Indian investors should view Gold ETF returns as the combination of gold price risk and currency risk. While the rupee has historically depreciated gradually against the US dollar, currency should not be relied upon or forecast for investment timing,” he said.
What factors should investors watch?
Experts suggest investors should track a combination of domestic and global factors rather than focusing exclusively on the exchange rate.
According to Arora, investors should monitor international gold prices, the USD/INR exchange rate, US Federal Reserve policy, and central bank gold purchases. Higher US interest rates generally strengthen the dollar and can pressure gold prices, while central bank buying supports demand.
Vakil added that investors should also monitor inflation, real interest rates, geopolitical developments, and ETF-specific metrics such as expense ratio, tracking error, and liquidity.