On Wednesday, gold premiums crossed the $100-per-ounce mark for the first time in more than a decade, signalling tight supply conditions and heightened speculative activity ahead of the Union Budget to be presented on February 1.

Bullion dealers quoted premiums of up to $112 an ounce over official domestic gold prices, which already include a 6% import duty and 3% sales levy, a dramatic turnaround from discounts of up to $12 seen just a week earlier.

Silver premiums climbed even faster, hitting a record $8 an ounce and surpassing the previous high recorded in October, reflecting strong investment demand and concerns over potential policy tightening.

India, the world’s second-largest gold consumer and the largest buyer of silver, relies heavily on imports to meet domestic demand, making the market highly sensitive to currency movements and government policy signals.

The rupee’s slide to a record low against the U.S. dollar has amplified import costs, prompting speculation that the government may raise duties on precious metals to curb inflows and support the currency.

Market participants say the anticipation of a policy shift has triggered aggressive pricing by traders, who are factoring in the risk of tighter import rules or higher tariffs once the budget is unveiled.

Finance Minister Nirmala Sitharaman had reduced import duties on gold and silver in mid-2024 to curb smuggling, but the recent surge in imports has widened the trade deficit and renewed pressure on policymakers to reconsider.

Domestic prices have mirrored the premium spike, with gold hitting an all-time high of 158,339 rupees per 10 grams and silver jumping to a record 335,521 rupees per kilogram.

Bullion industry officials noted that traders holding short positions were forced to buy aggressively as prices climbed, intensifying the rally and adding to the squeeze on physical supply.

While traditional jewellery demand has softened due to high prices, investment demand for coins, bars and exchange-traded funds has surged, reflecting a shift in consumer behaviour toward safe-haven assets.

Industry sources say this imbalance between strong investment appetite and constrained supply has created shortages in the spot market, allowing sellers to command unusually high premiums.

Concerns are also growing that authorities could tighten bank funding norms for jewellers, which are currently used to finance gold and silver imports, further restricting supply and pushing premiums higher.

Importers warn that any abrupt policy changes could disrupt supply chains and add volatility to prices, especially during the wedding season and ahead of major festivals when demand typically rises.

Analysts note that India’s bullion market often reacts sharply to budget-related speculation, with traders front-loading purchases or pricing in future costs well before official announcements.

If duties are raised, premiums could remain elevated in the near term, although higher prices may eventually dampen demand and encourage recycling of old jewellery.

For now, the combination of a weak rupee, strong investment inflows and uncertainty over government policy has created one of the tightest bullion markets India has seen in years.

Market participants say clarity from the budget will be crucial in determining whether premiums ease back or remain structurally higher in the months ahead.