India’s gold imports have collapsed to their lowest level in two decades, with February shipments expected to be down 85% year-on-year. The surge in gold prices has left buyers hesitant, even during the peak wedding season, typically a period of high demand for the precious metal.
Gold Prices Surge, Consumers Hold Back
Gold prices have been on an unprecedented climb, with spot prices reaching an all-time high of $2,956.15 per troy ounce. The sharp increase has caused a drastic pullback in purchases across India, the world’s second-largest gold consumer.
“Banks and jewellers have cleared a very small amount of gold from customs so far this month. Unless prices crash in the next 2-3 days, we are unlikely to see any improvement in the import numbers,” a government official said, requesting anonymity.
Retail buyers, who form the backbone of India’s gold market, have been particularly affected. Many are postponing purchases, hoping for a price correction before making any significant investments.
Impact on India’s Trade Balance and Currency
The collapse in gold imports could have broader economic implications. While lower imports may help narrow India’s trade deficit, they also reflect weakened domestic demand, which could ripple through related industries.
The Indian rupee, which has been trading near record lows against the dollar, could see some support from reduced gold imports. Historically, high gold imports have contributed to a widening current account deficit, putting downward pressure on the rupee. However, the currency remains vulnerable to broader global economic trends.
Wedding Season Fails to Boost Demand
February is typically a strong month for gold sales in India, driven by wedding-related purchases. But the record prices have disrupted traditional buying patterns, forcing many families to either reduce their gold budgets or opt for lighter jewelry.
“This is unprecedented. Even during the peak wedding season, footfalls at jewelry stores are way lower than expected,” said a Mumbai-based jeweller. “Some customers are looking at alternatives, while others are waiting for prices to stabilize.”
The Role of Government Policies and Taxes
India imposes a hefty import duty on gold, which has historically influenced demand patterns. In recent years, higher duties have pushed some demand into unofficial channels, but the current price surge has made even smuggled gold expensive for buyers.
The government has been monitoring the situation, but any immediate policy response remains unlikely. With global prices driving the surge, local interventions might have limited impact.
Will Prices Correct Soon?
Gold has been rallying amid global economic uncertainty, with investors flocking to the metal as a safe-haven asset. Analysts suggest that unless there is a significant shift in global monetary policies or a sharp drop in inflation fears, prices are likely to remain elevated in the near term.
Jewellers and traders are hoping for some relief before the next peak demand period—Akshaya Tritiya in April. If prices remain stubbornly high, further declines in gold imports could follow, reshaping India’s gold market dynamics for the foreseeable future.
