Gold traded at a premium in India last week for the first time in three months, reflecting the combined effect of tightening supply and improving domestic demand. Dealers reported premiums as high as $7 an ounce over domestic spot prices, a sharp reversal from discounts in the $5-to-$6 range recorded the previous week. This shift underscores a broader resurgence in local consumer interest even as government measures aimed at cooling imports continue to restrict the physical flow of the precious metal into the country.
Indian gold demand has improved as prices fell, coinciding with the kickoff of the country’s crucial festive buying season. During the first week of October, Indian gold prices softened to ₹145,538 per 10 grams, marking their lowest level in nearly two months. According to the Times of India, "The correction brought more buyers into the market compared with the previous week and also resulted in sellers offering smaller discounts."
The drop in prices coincided with the beginning of the festive season in September, a period traditionally considered highly auspicious for buying gold. The festival calendar builds momentum through Navratri in early October, peaks around Dhanteras and Diwali in early November, and typically flows directly into the winter wedding season, sustaining high levels of commercial activity.
On the supply side, however, the picture looks markedly different. Indian gold imports plunged by 45 percent in August and slumped again in September, falling from $2.3 billion to $1.8 billion, according to preliminary trade data. Imports typically pick up in late summer as commercial dealers stock up on the metal to prepare for the heavy fall buying season. However, this year’s seasonal build-up has been severely disrupted by aggressive government intervention designed to curb inbound shipments.
The Indian government announced a significant 9 percent duty increase in May, pushing the import tax on gold and silver from 6 percent to 15 percent. The policy shift came as the nation struggled with a surging trade deficit that placed intense downward pressure on the national currency, the rupee.
Energy imports compound these economic pressures. Oil accounts for roughly 22 percent of the nation’s total imports, and a sudden spike in global energy prices driven by the U.S.-Iran conflict has hit India particularly hard. The country imports nearly 85 percent of its fuel requirements, with about 50 percent of its crude oil imports flowing through the vulnerable Strait of Hormuz.
With both gold and oil prices spiking simultaneously, India’s import bill has expanded dramatically. The country’s merchandise trade deficit topped $330 billion in the financial year ending March 2026, rising from over $280 billion a year earlier—a 17.9 percent increase. This widening trade deficit has placed persistent downward pressure on the rupee.
Because gold and silver make up about 11 percent of India’s overall imports, policymakers raised import duties in an effort to restrict the volume of precious metals entering the country. The theoretical goal is to help close the massive trade deficit and stabilize the rupee. While the policy has succeeded in reducing official import figures, it is now creating acute shortages of the metal within the domestic market.
The tightening supply environment recently prompted several large Indian mutual funds to issue public notices suspending bulk subscriptions to gold exchange-traded funds (ETFs). According to Reuters, "The decision was taken following a nudge from the Securities and Exchange Board of India."
Despite government efforts to limit imports, regulatory hurdles are unlikely to dampen the deep-seated cultural appetite for gold among Indian consumers. When the government first announced the import duty increase, precious metals consultancy Metals Focus pointed out that Indian gold and silver demand has historically remained remarkably resilient in higher-tax environments. This resilience reflects the profound cultural connection that Indians maintain with precious metals, viewing them as a trusted store of wealth. As the rupee continues to depreciate against major global currencies, physical gold becomes an increasingly attractive hedge.
According to Metals Focus analysts, "Consumers often delay purchases initially following sharp price increases but typically adjust to higher price levels over time. In addition, elevated duties could encourage a recovery in unofficial flows, which had collapsed following the 2024 duty reduction."
That underlying resilience is currently visible in the robust festival season demand, which continues to drive market activity despite higher domestic prices and tighter local supplies.
