Gold trades at rare discount in India after tariff shock

India’s Gold market shows an unusual disconnect after the government raised import duties on the precious metal. While the import duty hike indeed raised prices, these haven’t increased as much as expected, as the steep rise in duties takes time to filter through and clashes with already weakening demand.

Gold prices in India have risen by 4%-6% since the measure was taken, significantly below the 9% increase in import taxes, Kavita Chacko, India Research Head at the World Gold Council (WGC), writes in a recent report.

“Physical market prices do not fully or immediately mirror the increase in duty – rather they adjust to it with a lag, particularly when the change is as steep as the current 9%,” she said.

This lag means that Gold prices are currently trading at a discount of nearly $150 per ounce relative to official landed prices, a sharp widening from the roughly $14 average seen before the duty hike, the data showed. 

Previous tariff hikes in 2019 and 2022 also resulted in discounts in the domestic market, but this episode has been significantly more pronounced due to the scale of the increase in duties.

Moreover, this time the duty hike arrived during a seasonally weak period for Gold purchases in India, once the peak wedding-buying season is over and during a traditionally inauspicious period for Gold demand between mid-May and mid-June. 

“Market feedback indicates that there is ample supply from the exchange of old Gold jewellery for new, and the likely front-loading of imports, further limiting the rise in price,” Chacko said.

Historically, higher import duties in India have often distorted local Gold pricing dynamics and encouraged smuggling. The WGC report notes that previous duty hikes between 2013 and 2026 were mostly followed by higher levels of unofficial or smuggled Gold. “Higher import duties widen the domestic-international price gap and increase the incentive for smuggling, while lower duties reduce its attractiveness,” the report said.

The World Gold Council expects India’s Gold demand to fall in 2026 due to the hike in import duties. Combined jewelry and bar-and-coin demand could decline by 50 to 60 tonnes this year, roughly 10% below 2025 levels, as higher import costs weigh on investment demand and purchases. Given that India (along with China) is the world’s largest Gold consumer, a 10% fall in demand could be a headwind for prices.