India’s Gold Tariff Hike Fuels Grey Market Activity and Harms Organised Trade, Reports WGC

The Indian gold market is currently experiencing significant turbulence following the government’s decision to raise import tariffs, which now stand at 15 percent. This has led to an increase in unofficial gold inflows as grey-market operators exploit the wider margins created by these tariffs. The World Gold Council reported a rise in illegal imports, with enforcement agencies seizing nearly double the amount of gold compared to previous periods, signaling rampant smuggling activity. In the June quarter, India’s net gold imports decreased by 23 percent year-on-year, reaching a quarterly low of 98.1 tons, largely driven by reduced jewellery purchases.

The sharp increase in tariffs was implemented to mitigate the trade deficit and stabilize the rupee; however, it has inadvertently spurred the grey market. The discrepancy of around 18 percent between the official price (including duties and taxes) and the grey market price has made illegal gold trading highly lucrative. As a consequence, there are predictions that illegal imports could exceed 100 tons by 2026, if the current trend continues. With gold demand dropping 6 percent year-on-year in the June quarter primarily due to a decline in jewellery sales, the market is experiencing a shift influenced by both consumer behavior and regulatory impacts.

In the short term, traders and investors should closely monitor the evolving dynamics of India’s gold market, especially as consumer sentiment could shift in the second half of the year. Should gold prices stabilize, it is anticipated that pent-up demand may re-enter the market, benefiting legitimate players. However, the grey market’s growing influence and the potential for continued smuggling pose risks that could disrupt the balance. Traders are advised to remain vigilant and adaptable to unfolding scenarios that may affect both the official and unofficial gold markets.

Source: Market Source

(Expert Note: This report was independently prepared by the Wealthova Commodities team.)