An analysis from Bloomberg Economics suggests the Reserve Bank of India may have sold approximately $12 billion worth of gold over a two-week period while simultaneously increasing its foreign currency assets by about $7.5 billion.
The calculation, made by senior India economist Abhishek Gupta based on publicly available data, covers the period up to May 22, 2026.
The report, released on Tuesday, notes that despite a recent increase in India's gold import tariffs—which should theoretically raise the valuation of the central bank's gold and dollar-denominated assets—the actual data shows a decline in gold reserves.
This divergence is interpreted as the central bank actively reducing its gold holdings to cushion the economy from external shocks stemming from conflict in the Middle East. The Reserve Bank of India has not yet responded to these inferences.
Analysts indicate that such operations reflect policy makers' concerns about current economic pressures.
With the ongoing conflict involving Iran and the effective closure of the Strait of Hormuz, India faces a dual shock from capital outflows and rising energy costs. Simultaneously, against a backdrop of a widening current account deficit putting pressure on the rupee, the central bank appears to be prioritizing the maintenance of liquid foreign exchange reserves.
Previous reports indicated that Reserve Bank of India Governor Sanjay Malhotra was evaluating various measures to stabilize the currency, including potential interest rate hikes and raising dollars from overseas investors.
It was noted that the central bank's recent interventions in the foreign exchange market have had some effect, with the rupee outperforming most other Asian currencies since hitting a record low on May 20, 2026.
The rupee fell to 96.923 against the U.S. dollar on May 20, 2026, briefly testing the 97 level multiple times before gradually recovering. This volatility, combined with changes to import policy, has pushed up domestic prices for gold and silver in India.
As the world's third-largest oil importer, India's foreign exchange reserves are being depleted more rapidly as energy costs rise due to regional conflict. With the local currency under pressure, the central bank is forced to balance stabilizing the exchange rate with its reserve composition.
Gupta suggests that India could still rebuild its foreign exchange assets in the future if windows of opportunity arise, such as a weaker U.S. dollar, capital inflows, or a decline in oil prices.
Data released by the Reserve Bank of India in April 2026 showed its gold reserves stood at 880.52 metric tons as of the end of March, with approximately 77% held domestically and the remainder primarily held at the Bank of England and the Bank for International Settlements.
Market Reactions to Policy Shifts
The sudden adjustments to India's precious metals import policy this month have triggered multiple effects in the domestic market. Observers note that these measures, aimed at protecting national reserves and regulating the inflow of precious metals, have drawn widespread investor attention to supply structures, price transmission, and the valuation of exchange-traded funds.
It has been observed that the full price reaction did not materialize immediately after the policy was implemented. Despite a net increase in import tariffs of approximately 9%, the initial market increase was only 5% to 6%. Industry sources explain this phenomenon is related to existing inventories purchased at lower costs that still offer profit margins, coupled with limited consumer acceptance of sudden sharp price hikes.
As lower-cost inventories are gradually depleted, domestic gold and silver prices are expected to more fully reflect the impact of the tariff increase. Some analysts believe medium-term price trends will still depend on broader macro factors, including developments in the Iran conflict.
Another emerging risk point of market focus is ETF premiums. It is noted that restrictions on silver imports could compress supply during periods of rising demand, leading to a divergence between spot and ETF prices.
It has been added that if investment sentiment suddenly heats up or panic buying occurs, ETF premiums could be pushed even higher. An industry insider also warned that supply constraints in the silver market are more pronounced, and a surge in demand could exert significantly stronger upward pressure on premiums compared to gold. However, if demand remains moderate, the associated risks are still considered manageable.
Regarding price trends, the market is closely tracking several key variables, including the interest rate policy of the new U.S. Federal Reserve leadership, actions by other major global central banks, changes in the USD/INR exchange rate, and price performance on the COMEX.
Oil prices are also an important indicator to watch. It is pointed out that while short-term oil price increases may push up inflation expectations, historically high oil prices have tended to enhance the appeal of gold as an inflation-hedging asset.
Analysts conclude that while policy changes may cause temporary pricing distortions and market volatility, the broader investment thesis for precious metals remains supported by inflation concerns, monetary policy uncertainty, and the global economic situation.
Industry Response and Domestic Alternatives
Against the backdrop of increasing import pressure, industry players are beginning to explore alternative paths. The India Bullion and Jewellers Association has proposed incorporating nearly 1,000 metric tons of idle "temple gold" into the circulation system to reduce reliance on imports.
The president of the association's Gujarat chapter noted that gold is the second-largest source of foreign exchange outflow for India, with annual imports of around 800 metric tons.
He stated that many trusts currently hold large amounts of idle gold, totaling nearly 1,000 metric tons. Utilizing even a portion of this gold would have a significant effect.
The association emphasizes that the proposal does not involve transferring gold ownership to the government. Instead, it aims to establish an institutionalized mechanism for these assets to circulate within the formal economic system, thereby alleviating import pressure and protecting industry jobs.
Following the tariff increase, the association official also called on jewelers to restrict bullion trading activities. He urged all jewelers not to engage in bullion trading or sell bullion directly to customers, requesting they not sell bars exceeding 5 grams. He explained this move aims to curb speculative demand.
He further stated that jewelry sales should prioritize meeting actual demand, such as for weddings and other essential purposes, while non-essential consumption should be restrained. He also reminded the industry to focus on employment issues, particularly for small artisans dependent on the jewelry sector. He noted that if measures like monetizing "temple gold" are implemented, employment opportunities would also be protected.
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