Gold traded at a premium in India last week for the first time in three months, as tighter availability met firmer festive-season buying. Dealers quoted premiums of up to $7 an ounce over domestic spot prices, reversing the prior week’s $5-to-$6 discounts. Demand improved as local prices eased; in the first week of October, domestic gold fell to ₹145,538 per 10 grams, a near two-month low. The drop coincided with the buying period that begins in September and builds through Navratri on 11 October, before peaking around Dhanteras on 6 November and Diwali on 8 November, with purchases often extending into the winter wedding season.
Supply has been constrained by weaker inflows. Gold imports plunged 45% in August and fell again in September, with preliminary data showing a drop to $1.8 billion from $2.3 billion. A 9% duty increase announced in May lifted the import tax on gold and silver from 6% to 15%, as New Delhi sought to contain a widening external balance. Oil makes up around 22% of imports; India buys nearly 85% of its fuel, and about 50% of crude arrives via the Strait of Hormuz. The merchandise trade deficit topped $330 billion in the financial year ending March 2026, up from over $280 billion, a 17.9% rise, while gold and silver account for about 11% of imports, with some mutual funds also suspending bulk subscriptions to gold ETFs following a regulator nudge.
Gold Derivatives Outlook Amid Festive Demand
We should prepare for heightened volatility and upside momentum in gold derivative contracts as the Indian festival demand peaks toward Dhanteras on November 6 and Diwali on November 8. The sudden swing from a $6 discount to a $7 premium per ounce in domestic prices signals an acute local supply squeeze that could drive short-term price spikes. We recommend considering long call options or bullish futures spreads on gold, leveraging this seasonal demand surge alongside domestic inventory shortages.
With Indian gold imports dropping from $2.3 billion down to $1.8 billion in September, physical tightness within the world’s second-largest gold consumer will likely keep local premiums elevated. Historically, Indian gold demand rises by 30% to 40% in the final quarter of the year due to festive and wedding purchases, regardless of high import taxes. We can expect this persistent retail buying to act as a strong price floor for gold futures over the coming weeks.
Rupee Weakness and Impact on Currency and Gold Markets
We also need to position for continued weakness in currency markets, particularly in currency futures tied to the Indian Rupee. Driven by crude oil imports flowing through the Strait of Hormuz and a merchandise trade deficit exceeding $330 billion, the rupee remains under severe downward pressure. Hedging against or shorting the rupee via currency derivatives offers a strategic way to trade the broader economic strain caused by high energy and precious metal import bills.
Furthermore, regulators pausing bulk subscriptions to domestic gold ETFs creates an artificial constraint on institutional paper gold, likely redirecting demand into active futures and options markets. Derivative traders should monitor implied volatility, as restricted ETF inflows combined with restricted physical imports often fuel sharper price swings in derivative instruments. We should maintain defined-risk strategies, like bull call spreads, to capture this upward squeeze while limiting exposure to sudden policy shifts or international market pullbacks.
