Gold prices in the Indian domestic market are currently trading at a discount of over ₹450 per gram compared to landed costs, which include import taxes. This situation has arisen following the Government’s decision to more than double the Customs duty from 6% to 15% on May 13.
To bolster demand, which has declined since Prime Minister Narendra Modi advised citizens against purchasing gold for a year, dealers are offering substantial discounts. “Domestic gold prices traded at a steep discount to official rates, widening from an average of $14 per ounce the week prior to the duty increase to nearly $150 per ounce (approximately ₹462 per gram),” stated Kavita Chacko, Research Head for India at the World Gold Council (WGC).
Amidst this backdrop, dealers are likely offloading inventory that was imported at the lower tax rates, increasing market supply. The government raised the import duty on gold, silver, and platinum on May 13 to limit shipments and manage foreign exchange outflow. Chacko noted that previous increases in import duties in 2019 and 2022 also led to discounts, but the current situation is notably more dramatic due to the extent of the increase.
As of the past weekend, gold prices in the Mumbai spot market had settled at ₹1,58,534 per 10 grams. On the MCX platform, gold futures for June concluded at ₹1,58,588. In the international market, gold prices fell over 0.5%, closing at $4,516.75 per troy ounce this week.
“The duty change has compelled importers with lower duties to offload their stocks at a discount,” commented CA Surendra Mehta, media spokesperson for the Indian Bullion and Jewellers Association (IBJA).
Retailers are attempting to pass on the benefits to consumers by reducing making charges to boost sales. However, as Mehta pointed out, “There is virtually no demand,” attributing the lack of consumer interest partly to the Prime Minister’s appeal to refrain from buying gold. Chacko highlighted a mixed response across market segments, with some retailers indicating a likely pause in procurement. “Larger chain stores experienced a spike in panic buying post-announcement, driven by fears of further restrictions, but they anticipate declining sales while remaining resilient due to inventory support and ongoing bridal demand,” she added.
Mid-sized and regional jewelry stores continue to see purchases from affluent clients, but they are expected to lean more on exchange programs and tighter inventory cycles moving forward. Chacko pointed out that smaller retailers appear most vulnerable, already challenged by high prices and now facing added pressure from reduced sales volumes and profit margins.
WGC data shows a historical trend of increased smuggling correlating with hikes in import duties. According to Chacko, increases in duty from 2013 to 2026 were typically followed by a rise in unofficial or smuggled gold, whereas reductions coincided with significant declines in smuggling activities. “Higher import duties widen the domestic-international price gap, thereby increasing the incentive for smuggling,” she stated, although she noted that recent duty changes had a limited impact on official import volumes over the last 13 years.
The WGC estimates that combined demand for jewellery and bars and coins could decrease by 50 to 60 tonnes in 2026, approximately 10% lower than 2025 levels, primarily due to the import duty hike. Other factors, including gold prices, income changes, inflation, and monsoon effects, will also shape future annual demand.
