India Gold Demand Stumbles as Duty Hike and Price Surge Deter Buyers; China Premiums Narrow
Physical gold demand across Asia’s two largest consumers weakened in the week ending May 29, as Indian buyers pulled back sharply following a government increase in import tariffs and a surge in domestic prices, while cautious sentiment in China pushed premiums to a narrower range. Dealers in Mumbai and Chennai reported a steep drop in jewellery store footfall, and premiums in Beijing narrowed from the highs of recent weeks, according to Reuters.
Indian dealers quoted discounts of up to $106 an ounce over official domestic prices this week — inclusive of a 15% import levy and a 3% sales tax — up from discounts of up to $78 an ounce the previous week. Domestic gold prices had fallen to 153,451 rupees per 10 grams in the previous session, their lowest in a fortnight, before recovering slightly on Friday.
“Jewellery stores are reporting very low footfall these days. Retail consumers are struggling to understand price trends and are preferring to stay on the sidelines,” a Chennai-based bullion dealer told Reuters.
The retreat in Indian buying follows a policy decision made earlier this month. The South Asian country raised import tariffs on gold and silver to 15% from 6%. The scale of that increase — more than doubling the existing rate — has rattled the trade. Jewellers have responded by drawing down existing inventory rather than placing fresh orders.
“Sentiment in the market is very weak after the government increased import duty. Jewellers are extra cautious and are not willing to build stocks,” a Mumbai-based dealer with a private bullion importing bank told Reuters.
The double pressure of elevated prices and a heavier import burden has created an unusual dynamic: dealers are simultaneously sitting on large discounts relative to official prices while facing the highest effective cost of bringing new metal into the country in years.
In China, the world’s largest gold consumer, the picture was more stable but still pointed to cooling demand. Bullion traded at premiums of $9 to $12 an ounce over the global benchmark price, narrowing from premiums of $10 to $20 the previous week. Traders attributed the retreat to market uncertainty rather than any structural shift in Chinese appetite for the metal.
“Premiums in China are still somewhat steady, but not as many people want to buy at the moment as the conflict in the Middle East is still uncertain, so people would like to see what happens next,” said Peter Fung, head of dealing at Wing Fung Precious Metals.
Spot gold itself was heading for a third consecutive monthly loss. Prices fell to a two-month low of $4,365.76 on Thursday before closing higher on reports of a possible U.S.-Iran ceasefire extension. The geopolitical development provided some relief to a market that had been trending downward through May.
Fung identified a floor for the near term. “A good support level will be $4,360,” he said. “I think from here, some more buying interest should come in the market.”
Across the rest of the region, conditions varied. In Hong Kong, gold traded at par to premiums of $1.80. In Japan, gold was sold at a discount of $0.50. In Singapore, gold was traded at a discount of $0.25 to a premium of $3.50.
Regional Impact
For India, the combination of a sharp duty increase and record-high domestic prices is dampening demand during a period that would ordinarily see moderate activity. The wedding season stretches across the Indian calendar, and seasonal buying has historically absorbed a significant share of annual imports. With dealers now unwilling to build inventory and retail consumers waiting on the sidelines, the near-term outlook for Indian physical demand remains constrained.
In China, the narrowing of premiums signals that buyers are adopting a wait-and-see posture amid unresolved tensions in the Middle East. According to Reuters, market participants indicated they are monitoring ceasefire developments before committing to fresh positions. The premium range of $9 to $12, while lower than the previous week’s $10 to $20, still reflects underlying Chinese demand above global benchmark levels.
Background
India and China together account for the bulk of the world’s physical gold consumption. India held the world’s second-largest gold consumer position for decades, though China has led overall demand in recent years. Gold in India is embedded in the wedding, religious, and rural savings economy, with a significant share of purchases occurring in small towns and villages where bullion serves as a primary store of wealth. China’s physical gold market is structured through the Shanghai Gold Exchange, the platform on which all Chinese physical trades are conducted. Import duties in India have historically been a major lever of demand management, with tariff changes having an immediate and measurable effect on dealer behaviour and retail footfall. Spot gold has been under pressure globally as markets assess the trajectory of U.S.-Iran diplomacy.
What Happens Next
Dealers in India told Reuters they are watching for price stabilisation before resuming normal stock-building. Any reduction in import duties, or a sustained fall in global spot prices, would likely bring buyers back to the market. In China, Peter Fung of Wing Fung Precious Metals indicated that buying interest is expected to return if prices hold around the $4,360 level. The outcome of U.S.-Iran ceasefire talks, which briefly lifted gold prices on Thursday, will continue to influence market sentiment in both countries in the coming weeks. Reuters reported no confirmed policy announcements from either the Indian government or Chinese authorities regarding future changes to gold trade conditions.
