Import Licenses Restored

The recent authorization of 17 banks by India’s Directorate General of Foreign Trade (DGFT) for bullion imports marks an important step to normalize trade flows. This action aims to alleviate the significant disruption that had halted inbound shipments of gold and silver for weeks.

Supply Disruptions Tighten Market, Narrow Price Gaps

The prolonged delay in the DGFT's issuance of the annual list of authorized bullion importers created a major hurdle for India's precious metals market. Banks paused orders while waiting for license renewals, leaving approximately 5 tonnes of gold and 8 tonnes of silver stranded at customs without clearance. This disruption occurred shortly after the DGFT reclassified gold, silver, and platinum jewelry imports as 'restricted' from 'free' on April 2, mandating government licenses for most importers. The combined factors severely tightened domestic supply. Consequently, the typical discount for Indian gold prices relative to international benchmarks narrowed significantly to around $8 per ounce in early April, a stark contrast from the $46 per ounce discount observed in March. This price convergence indicates a supply squeeze driven by import restrictions and bottlenecks, impacting market dynamics ahead of key demand seasons.

Record Imports Amid Shifting Investor Behavior

India, the world's second-largest gold consumer and largest silver buyer, relies heavily on imports to meet its substantial domestic demand. In the year ending March 2026, gold imports reached a record $71.98 billion, driven by price surges, even as import volumes marginally declined. Silver imports similarly surged, more than doubling by value to approximately $12 billion, with both value and volume increasing substantially. Amidst these import trends, investor behavior showed a notable shift. Gold ETFs saw significant inflows, with January 2026 alone seeing ₹24,040 crore invested, outpacing equity funds which attracted ₹24,029 crore. For the first quarter of 2026, gold ETFs recorded ₹31,561 crore in inflows, indicating sustained investor interest in gold for diversification. However, silver ETFs experienced their first net outflow in 27 months in February 2026, amounting to ₹826.3 crore, following a sharp price rally that led some investors to take profits. These import figures contribute to India's trade deficit, which widened to an estimated $333.2 billion in FY26. Global gold price forecasts for 2026 are bullish, with major institutions projecting prices between $5,400 and $6,300 per ounce, influenced by ongoing central bank accumulation and geopolitical uncertainties.

Potential Risks Ahead

Despite the reopening of import channels, risks remain for India's bullion market. Regulations are changing, with the DGFT's recent shift to 'restricted' status for jewelry imports potentially creating compliance challenges and slowing normalization. Customs clearance bottlenecks, highlighted by the recent backlog of over 13 tonnes of precious metals, suggest that operational issues could reappear, affecting supply continuity. India's significant reliance on imports exposes the economy to the volatility of global gold and silver prices and currency fluctuations, potentially worsening the trade deficit and pressuring the rupee. While gold ETFs offer liquidity, the strong cultural demand for physical gold means that any prolonged disruption in its availability could lead to sharper price increases and supply shortages, especially leading up to significant demand periods like Akshaya Tritiya. The persistence of a wide trade deficit, partly fueled by high bullion import values, presents an economic challenge that may lead to more scrutiny.

Demand Outlook Remains Strong

Analysts foresee continued strong demand for gold in 2026, driven by central banks diversifying their holdings and investors seeking safe havens amid global economic uncertainty. The significant inflows into Indian gold ETFs suggest this trend will likely continue, with investors treating gold as a strategic portfolio diversifier. However, the sustainability of these inflows will depend on how global prices, domestic conditions, and import policies affect supply. The market will be closely watching for any further regulatory adjustments or changes in global supply chains that could influence India's substantial bullion trade.