India’s gold market is trading at a steep discount to international prices, but the primary drivers are policy and currency moves rather than monsoon conditions, according to analysis of demand and pricing data.
The Indian government raised gold import duties from 6% to 15% in May, the largest single increase on record, according to the analysis. Within days, domestic gold prices fell to a discount exceeding $100 an ounce relative to global benchmarks. This followed a 2013 episode when duties and import restrictions pushed domestic prices to a premium of more than $150 an ounce as supply tightened.
Monsoon performance remains a secondary factor. India’s weakest monsoon since 2009 has reduced rural incomes and traditionally dampens seasonal gold purchases by farming households. Yet historical precedent shows government policy can override weather effects. In 2016, despite adequate rainfall and healthy rural incomes, gold demand fell by 148 tonnes year-over-year due to a jewelers’ strike, new excise duties, and the 2016 demonetization policy, the analysis notes.
The rupee’s depreciation has amplified the impact of higher duties. Gold prices in India are up nearly 12% this year in rupee terms, and combined with the 15% import duty, domestic buyers face prices roughly 20% higher than at the start of 2025. American investors had the opportunity to buy the dip in spring, but Indian jewelry buyers did not, the analysis states.
Demand data reflects the shift. Indian jewelry demand in the second quarter totaled 75 tonnes, the second-weakest second quarter since 2000. However, alternative allocations surged: bar and coin demand in the first half reached 113 tonnes, the highest in 13 years, while gold ETF holdings hit a record with more than 12 million accounts. Recycling activity fell to 19 tonnes in the quarter, the lowest in nearly three years, despite domestic prices being roughly 60% above year-ago levels.
Instead of selling, households are borrowing against gold. Outstanding loans secured by gold jewelry reached about 5.1 trillion rupees at Indian banks as of late May, up 105% from a year earlier, with an additional 3.3 trillion rupees at non-bank lenders. Gold loans now rank as the second-largest category of retail lending in India, trailing only housing loans.
The analysis suggests this behavior indicates continued confidence in gold as a store of value, even as the traditional "Love Trade" driven by weddings and festivals weakens. The shift reflects what the analysis describes as the "Fear Trade" taking hold within households, driven by higher taxes on gold and currency depreciation, rather than a loss of faith in the metal itself.
