A Nation (India) Is Trying To Stop A Gold Buying Frenzy — Here’s Why

Stop buying gold for one year. That is a request from a sitting world leader. A government has just told its citizens to stop buying gold.

This isn’t some fringe regime; it’s not about a wartime emergency. India is the world’s second-largest gold market.

When a prime minister has to make that appeal publicly, it means that the pressure underneath the surface has become impossible to hide.

And the question isn’t whether you should listen to the request; the question is what it tells you about the control they are trying to grasp at, and the currency they are trying to protect.

Prime Minister Modi has urged Indians to avoid buying gold for at least a year to preserve foreign exchange reserves.

In April this year, official gold imports reportedly collapsed to around 15 tons against a monthly average of 60 tons, one of the weakest months in 30 years outside of the pandemic era.

Now that might sound like it’s about a demand collapse, but actually it’s sort of a supply suppression.

Indian banks have been unable to import gold and silver for 5 weeks, with shipments stuck at customs since the start of the financial year.

The problem was administrative, including delayed import authorization, stalled customs clearance, and confusion over tax treatment.

Now, the trade ministry has delayed publishing the annual list of banks eligible to import precious metals.

And when that list was finally issued on April 17th, purchases still didn’t properly resume.

Because customs authorities had not issued the separate clearance order required before incoming consignments could be released.

So this is how a bureaucratic blockage becomes a nationwide bullion shortage.

But we don’t have to worry about the import numbers, because the real thing that we have to be looking out for is the premium.

Because when supply is tight, and buyers still want metal, the local price rises above the global price, and domestic prices were already being pushed higher by this constrained supply, with premiums climbing above $20 an ounce.

And that premium is the market saying that there is scarcity, and the government can delay paperwork, but as they have found out all over the years, they cannot delay demand.

And Modi just this week has not only asked Indians to stop buying gold, but he has also now asked them to change how they live.

He has urged citizens to reduce petrol, diesel, and gas use, switch to public transport, carpool, work from home, avoid non-essential foreign travel, and postpone buying gold for a year.

Now, this was framed as a national effort to conserve foreign exchange during the Gulf crisis and rising crude price pressure.

Now, Goldman Sachs has already cut India’s growth forecast by more than half a percentage point, down to 5.9%, and the IMF is at 6.5%.

They’re not worrying about a projection here; they are making revisions in real time.

Now, on the surface, just to the mainstream media, Modi’s list might just be read as something patriotic.

Belt tightening, in fact, but if you look at it more closely, what is actually being directed?

We see travel, we see fuel, imports, gold, foreign exchange, personal consumption, and household savings.

Obviously, it’s not a random list. It’s a list of ways that a government can try to prop up a country during a global energy crisis.

But it’s also the map of government trying to slow the escape of value from the domestic economy.

Now India is the world’s third-largest oil importer. Last year, it spent $174 billion on oil and gas, with half of its crude and two-thirds of its natural gas coming from the Gulf.

So when that region erupts, well, India feels it in the price of cooking gas and the cost of every bus ticket.

Every rupee in a citizen’s pocket, and the rupee, well, that has hit a historic low.

The Reserve Bank of India has been selling dollars to slow the decline. Foreign exchange reserves have fallen 5% since the conflict began, down to $690 billion. And foreign investors have been selling Indian stocks at the fastest pace on record.

Now, a weaker rupee, of course, makes imports more expensive. More expensive imports feed inflation, and the government then faces a very familiar choice.

Should we absorb the pain, pass it on, borrow more, print more, or start telling citizens how to behave?

And that is what we are seeing. Until recently, the pain of higher fuel prices was being absorbed by oil companies and the government.

But now the prime minister is asking citizens to share that burden directly.

• Work from home.
• Take the metro.
• Postpone your daughter’s wedding gold.

This is not a suggestion; it is a blatant confession that the state can no longer manage the cost alone.

Now, obviously, this is not capital control in the formal sense. Nobody is saying Indians cannot legally own gold. But it is a form of soft control.

It is a public appeal, a kind of behavioral nudge. And there is a political instruction here that is wrapped up in patriotic language.

But soft control is very often where harder control begins. Don’t forget, gold is not being targeted because it is useless.

It’s being targeted because it is useful. And it is so useful to households precisely because it sits outside of the normal promises of the financial system.

• It’s not a bank deposit.
• It is not a government bond.
• It is not dependent on the smooth functioning of capital markets or political speeches.

And during a currency squeeze, that independence becomes inconvenient to the government.

Now the government wants citizens to conserve foreign exchange, but citizens want to conserve purchasing power.

And those 2 goals can overlap in stable periods, but under stress, they pull in opposite directions.

So the state says don’t buy gold, and the citizen hears, why is the government suddenly so worried that I might?

The Indian state itself holds gold as part of its reserves. So the Reserve Bank of India understands perfectly well why gold has strategic value.

But when Indian households buy imported gold, they are effectively converting rupees into dollar-priced assets that sit outside of the banking system.

And outside the government’s preferred savings channels. And that is why gold becomes politically inconvenient.

Not because gold has failed, but because gold is doing exactly what it has always done. And that raises an awkward question for policymakers.

• Are Indian households being excessive?
• Are they simply doing what central banks across the world have already been doing for the past several years?

Of course, central banks have been adding gold to their reserves because

• They understand counterparty risk.
• They understand currency risk and the sanctions risk.
• They understand geopolitical fragmentation.

But when citizens do the same thing at a household level, they are often told that they are being unproductive.

Maybe they’re being told they’re emotional or unpatriotic. Apparently, gold is sophisticated when a central bank owns it.

But it’s suspiciously primitive when a family does it.

So what does this actually trigger?

Well, the government can restrict the supply side, but what it cannot restrict is the demand side, and that gap has to go somewhere.

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Consequence #1: Domestic Premiums Stay Elevated

Restricted supply doesn’t eliminate demand; it just reprices it. So jewelers face inventory pressure, and some consumers will delay purchases.

Now others might bring them forward, fearing further shortages.

Recycling will likely increase, and the gap between the paper price and the price at which real metal can actually be obtained becomes very obvious very quickly.

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Consequence #2: Smuggling Incentive

If the domestic price rises far enough above the international price, and official import routes are restricted or delayed, well, someone will try to capture the difference.

India has a long history of gold smuggling during periods of high duties and import controls.

Every experienced bullion market participant knows that premiums create behavior, and the incentive structure is already moving in the wrong direction.

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Consequence #3: Normalization of Government Intervention in Private Financial Behavior

Once citizens are asked not to buy gold for the good of the currency, well, the obvious question is, well,

What else might they be asked not to do?

• Don’t travel abroad because it uses foreign exchange.
• Don’t hold too much wealth outside of the banking system.

Because the state needs domestic savings to remain visible, taxable, and available for policy.

And this is why physical gold has always had a difficult relationship with the government.

It’s not merely a commodity; it is a form of financial dissent that doesn’t require protest. Or placards or slogans.

It just means a citizen says quietly, “I would rather hold this than your promise.”

India has just reminded us that gold is not just about the price. It is about availability, trust, and control.

Thanks For Reading 🙂