India's gold market is experiencing an unusual situation following a significant increase in import duties on gold. The government raised import taxes by 9%, but domestic gold prices have only risen by 4%-6% since the measure was implemented, according to Kavita Chacko, India Research Head at the World Gold Council (WGC) [1]. This discrepancy is attributed to a lag in the adjustment of physical market prices, especially given the steepness of the duty hike [1].
As a result, gold in India is currently trading at a discount of nearly $150 per ounce relative to official landed prices, a sharp increase from the average $14 discount seen before the duty hike [1]. This discount is more pronounced than those observed after previous tariff hikes in 2019 and 2022, largely due to the scale of the current increase [1]. The timing of the duty hike, which coincided with a seasonally weak period for gold purchases following the peak wedding season and during an inauspicious period for gold demand, has further limited price increases [1].
Market feedback suggests that ample supply from the exchange of old gold jewelry for new and the likely front-loading of imports have also contributed to restraining price rises [1]. The WGC report highlights that historically, higher import duties in India have distorted local gold pricing and encouraged smuggling, as the widened domestic-international price gap increases the incentive for unofficial imports [1].
Looking ahead, the World Gold Council expects India's gold demand to fall in 2026 as a result of the higher import duties. Combined jewelry and bar-and-coin demand could decline by 50 to 60 tonnes this year, which is roughly 10% below 2025 levels, as higher import costs dampen investment demand and purchases [1]. Given India's status as one of the world's largest gold consumers, a 10% drop in demand could act as a headwind for global gold prices [1].
CONCLUSION
India's steep gold import duty hike has led to a rare and significant discount in domestic gold prices, with demand expected to fall by up to 10% in 2026. The market faces potential distortions and increased smuggling incentives, signaling a high-impact event for both local and global gold markets.