India’s gold demand remains subdued as buyers stay cautious amid volatile prices and higher import duties, with premiums narrowing in China as well.
Analysts warn that regulatory tightening and inflation risks could keep consumption weak through 2026.
Domestic gold prices were trading around INR 158,400 per 10 grams on Friday. India is one of the largest consumers of gold in the world.
Subdued demand in India
Indian gold demand has slowed, with buyers hesitant due to volatile prices and elevated import duties, according to a Reuters report.
Traders said consumers are reluctant to commit to purchases, particularly after the government raised the import duty to 15% in May, the steepest increase on record.
“Demand is very weak. People are waiting for prices to stabilize,” one Mumbai-based dealer told Reuters.
The World Gold Council (WGC) noted in its May update that jewellery and bar-and-coin demand could decline by 50–60 tonnes (10% year-on-year) in 2026 due to the duty hike.
Domestic prices are trading at a deep discount to landed prices, widening from about $14/oz before the hike to nearly $150/oz afterwards, as ample supply and profit-taking weighed on premiums.
Regulatory tightening and market impact
The duty hike was part of broader measures aimed at conserving foreign exchange reserves amid geopolitical uncertainty and a weakening rupee.
Banks paused bullion imports for over a month earlier this year due to delays in government notifications, further disrupting supply.
Large chain jewellers reported panic buying immediately after the duty announcement but expect slower sales ahead.
Smaller retailers, already pressured by high prices, are struggling with reduced volumes and margins.
China premiums narrow
The premiums in China, the world’s top consumer, have narrowed, reflecting cautious sentiment. Buyers are hesitant as global prices remain volatile, and local demand has softened.
This trend mirrors India’s slowdown, suggesting broader regional weakness in physical gold consumption.
The WGC’s May commentary noted that gold fell 1% in May, finishing at $4,546/oz, as positive risk sentiment and ETF outflows weighed on prices.
Analysts warned that the Federal Reserve may need to hike rates later this year as inflation pressures mount, which could prolong headwinds for gold.
“Gold is vulnerable, perched on its 200-day moving average, in what looks like a declining channel,” the WGC said.
Smuggling concerns and outlook
Past trends suggest that higher import duties increase unofficial inflows. After the 2013 duty hike, smuggled gold rose sevenfold within a year.
A similar pattern was seen after the 2022 hike to 15%, when unofficial imports surged from 17 tonnes to nearly 50 tonnes.
Analysts caution that the latest increase could again encourage smuggling, widening the domestic–international price gap.
India’s gold demand is expected to remain muted in the near term, with jewellery purchases subdued outside of weddings and festivals.
Investment demand is more sensitive to duty changes and could decline further if inflation persists.
Globally, ETF flows remain lacklustre, and the possibility of Fed rate hikes poses additional risks.
For now, the market is caught between regulatory tightening, volatile prices, and cautious consumers.
Unless prices stabilize and policy pressures ease, India’s gold demand is likely to stay weak through the rest of 2026, with broader implications for global bullion trade.
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