When Administrative Delays Disrupt Precious Metal Flows

The global precious metals market is facing a notable variable as banks in India have unexpectedly halted gold and silver import orders. The cause does not stem from market demand, but rather from delays in the issuance of formal government authorization.

Specifically, tons of gold and silver are currently stuck at customs due to the absence of a new directive from the Directorate General of Foreign Trade (DGFT) – the agency under the Ministry of Commerce and Industry responsible for approving bullion imports for banks authorized by the central bank.

Import Mechanism and the “Policy Gap”

Typically, the DGFT issues a list of banks eligible to import gold and silver at the beginning of each financial year. However, the most recent directive (issued in April 2025) expired on March 31, and no replacement order has been released so far.

As a result:

• Over 5 tons of gold and around 8 tons of silver are stuck at ports

• Banks have been forced to halt new orders from overseas suppliers

• The precious metals supply chain has been significantly disrupted

This delay has not been previously reported, raising concerns about policy consistency.

Domestic Impact: Risk of Shortages and Rising Premiums

As the world’s second-largest gold consumer and the largest silver importer, India relies almost entirely on overseas supply.

The disruption in imports could lead to:

• Short-term domestic supply shortages

• Rising physical market premiums

• Increased pressure during peak demand periods such as the Akshaya Tritiya festival

According to the World Gold Council, India’s gold demand in 2025 fell to 710.9 metric tons, the lowest level in five years—indicating that the market was already weak and is now more vulnerable to supply shocks.

Global Impact: Downward Pressure on Precious Metal Prices?

Interestingly, while the domestic market may face shortages, weakening demand from India on a global scale could:

• Put downward pressure on gold and silver prices

• Reduce physical demand, a key support factor for precious metals

Additionally, reduced imports may help:

• Narrow the trade deficit

• Support the rupee, which has been among the worst-performing Asian currencies this year

Policy Perspective: Prioritizing Macroeconomic Stability?

Some analysts suggest that this delay may be part of a broader macroeconomic strategy by the Indian government.

In a context where:

• Oil, gas, and fertilizer prices are rising due to geopolitical tensions (particularly related to Iran)

• India’s import bill is expected to increase

The government may be attempting to:

• Curb non-essential imports (such as gold and silver)

• Contain the trade deficit and stabilize the currency

At the same time, other measures—such as urging refiners to limit spot dollar purchases—have also been implemented.

Market Signals: ETF Outflows and Inventory Drawdowns

Another notable development is that:

• Gold and silver inventories from previous imports are being depleted

• The market is increasingly relying on ETF sales

• Meanwhile, ETFs are experiencing net outflows (redemptions)

This creates a fragile market structure, as both physical and financial sources of supply are weakening.

A Small Bottleneck, Broad Implications

A seemingly minor administrative delay is triggering a domino effect:

• Disrupting precious metals supply chains

• Causing domestic supply-demand imbalances

• Creating ripple effects across global prices and currency markets

In the short term, the market is awaiting clarity from DGFT. In the longer term, however, this situation highlights a deeper issue: the heavy reliance on imports and the market’s sensitivity to policy decisions.

Source: Reuters