Gold, silver sell at huge discount after tariff hike

Despite a significant hike in import duties to 15 per cent, gold and silver are paradoxically trading at substantial discounts in the Indian domestic market, driven by importers offloading stock acquired under the previous, lower duty regime.

Gold and silver prices have surged in the domestic market to reflect the sharp increase in landed costs after the government more than doubled import duties on the two precious metals to 15 per cent.

Yet the rise in prices has also been accompanied by significantly deeper discounts.

The yellow metal was quoted at a discount of $200 an ounce on Wednesday, roughly Rs 6,000 per 10 grams.

By Thursday, the discount in the Mumbai market had narrowed slightly to $145 an ounce, or around Rs 4,470 per 10 grams, taking the price of pure gold to Rs 1,61,349 per 10 grams.

Silver, too, traded at deep discounts.

The white metal was quoted at a discount of $6 an ounce on Wednesday, easing modestly to $4.6 an ounce, or about Rs 5,400 per kg, in the domestic market on Thursday. Silver prices were trading at roughly Rs 2,87,350 per kg.

Understanding the Duty Hike and Market Impact

Import duties, including basic Customs duty and cess, on silver, platinum, palladium and rhodium bullion now stand at around 15 per cent, up from 6 per cent earlier.

The duty on doré (unrefined gold), has risen to 14.35 per cent from 5.35 per cent, while the 0.65 percentage point differential between refined gold and doré remains unchanged.

Adarsh Diwe, research consultant at Metal Focus, said some banks and importers that had managed to bring in gold at the earlier 6 per cent duty regime, just before the revised structure came into force, were offloading supplies at lower prices, pushing the market into a steep discount. He expects the current situation to persist for some time.

Challenges in Gold Imports

For much of last month, banks refrained from importing gold despite the renewal of their recognition as nominated banks in mid-April.

According to estimates in a Metal Focus report, gold imports plunged sharply during the month to barely 10-15 tonnes.

Industry watchers said Indian banks had halted imports in April because of delays in obtaining fresh licences and uncertainty over the application of goods and services tax (GST) on gold imports by banks.

Banks had enjoyed GST exemption since the current tax regime was introduced in 2018, but that exemption expired this year and lenders have been awaiting an extension.

Compounding the disruption, the government also stopped renewing licences for doré imports, further dampening import activity.

Industry watchers said banks had resumed importing gold only in the past week or so, while paying GST.

"At present, gold demand has dried up," said Surendra Mehta, national secretary of the Indian Bullion and Jewellers Association (IBJA). He added that demand could stabilise if prices corrected.

Historical Context and Future Outlook

When Prime Minister Narendra Modi recently urged citizens to avoid non-essential gold purchases for a year, several jewellers reported a rush of buying the following day amid fears of tighter measures aimed at curbing the gold import bill.

Within days, import duties were raised.

Banks with consignments already in transit are now facing sharp disparities between their import costs and prevailing market prices.

Even before the surge in oil prices, following the eruption of conflict in West Asia, began weighing on the Indian economy, gold and silver import bill had climbed to $84 billion in FY26, accounting for 12.85 per cent of the country's total imports.

In 2010, import duty on gold stood at just Rs 300 per 10 grams. The regime was later converted to an ad valorem structure, with duties eventually raised to 15 per cent by 2022.

The steep levy fuelled a sharp rise in gold smuggling, prompting the government to cut the duty to 6 per cent in February 2024.

That relief proved short-lived, with duties now restored to 15 per cent.

Metal Focus, in its latest report, said: "Going forward, the duty increase is expected to add to existing pressures on precious metals' demand.

"Elevated energy prices and expectations of a weak monsoon already present twin risks to inflation and household disposable incomes.

"Against this backdrop, the ongoing shift towards lighter-weight and lower-carat gold jewellery is likely to accelerate."