Gold: Indian Demand Faces Downside Risk After Modi’s Import Curb Call, Says Commerzbank

Indian gold demand, a major pillar of the global bullion market, could face a significant headwind following Prime Minister Narendra Modi’s recent call for voluntary curbs on gold imports, according to analysts at Commerzbank. The bank’s commodities research team issued the warning in a note published this week, flagging that the move may dampen consumer appetite and weigh on prices in the world’s second-largest gold-consuming nation.

Modi’s Call for Voluntary Restraint

Speaking at a recent public event, Modi urged citizens to consider reducing their gold purchases as a patriotic gesture to help narrow India’s widening trade deficit. While the statement carries no legal force, Commerzbank analysts argue that the moral suasion from the country’s top leadership could influence consumer behavior, particularly during the upcoming wedding and festival seasons—historically the peak periods for gold buying in India.

The appeal comes as India’s gold imports surged to a record high in 2024, putting pressure on the current account deficit and the rupee. The government has previously used tariff hikes and regulatory measures to cool demand, but a direct appeal from the Prime Minister is an unusual and potentially powerful tool.

Market Implications and Price Outlook

Commerzbank’s assessment suggests that if Indian demand softens meaningfully, it could remove a key source of support from the global gold market. India accounts for roughly 25% of global gold consumption, and any sustained drop in buying from the country often correlates with downward pressure on international prices.

“The risk is that the moral suasion effect, combined with already elevated local prices due to import duties and rupee depreciation, leads to a more pronounced demand slowdown than the market currently prices in,” the Commerzbank note stated. The bank cautioned that while the direct impact may take weeks to materialize, the sentiment shift is already being felt in physical premiums in the Mumbai and Delhi bullion markets.

Broader Economic Context

India’s trade deficit widened to $29.7 billion in January 2025, driven largely by a sharp increase in gold imports. The government is under pressure to manage foreign exchange reserves and stabilize the rupee, which has been underperforming against the U.S. dollar. Modi’s appeal is part of a broader push to curb non-essential imports without resorting to protectionist trade barriers that could invite retaliation from trading partners.

Gold analysts are now watching for data from the Indian Bullion and Jewellers Association (IBJA) for signs of a slowdown in physical offtake. Early anecdotal reports from jewelers in key markets such as Gujarat and Maharashtra suggest some consumers are deferring purchases, though it remains too early to confirm a trend.

Conclusion

Commerzbank’s warning adds a new layer of uncertainty to the gold outlook. While global factors such as U.S. interest rate expectations and central bank buying remain dominant drivers, the Indian demand risk is a wildcard that traders will need to monitor closely. If Modi’s call translates into a sustained reduction in purchases, it could provide a headwind for gold prices in the near term, particularly as the wedding season approaches.

FAQs

Q1: Did Modi impose a legal ban on gold imports?
No. The Prime Minister made a voluntary appeal for citizens to reduce gold purchases. There is no legal ban or new tariff at this stage.

Q2: How much gold does India consume annually?
India consumes approximately 800–900 metric tons of gold per year, making it the second-largest gold consumer globally after China.

Q3: Could this impact gold prices internationally?
Yes, if Indian demand drops significantly, it could reduce a key source of global demand and put downward pressure on international gold prices, though the extent depends on how consumers respond.