The premium spike, exceeding Rs 30,000 per kg for silver and 3-4% for gold, marks a sharp departure from the typical minimal spread between Multi Commodity Exchange (MCX) and COMEX prices, signaling widespread market anxiety about possible policy action.
“The premium in the Indian market is abnormally high this time because the market is expecting there may be a duty hike in the Budget. That’s why the premium is increasing,” Manoj Kumar Jain, Director and Head of Commodity and Currency Research at Prithvi Finmart told ET.
The surge comes against the backdrop of dramatic price movements, with MCX gold February futures trading around 5% higher at Rs 1,57,750 by 5 pm, while silver March futures jumped 3% to Rs 3,33,672. Gold ETFs showed even sharper gains—Gold BeES ETF shot up 7.6%, Zerodha Gold ETF soared 9.6% higher, and Nippon India Silver ETF climbed 4.8%.
The abnormal premium is creating technical dislocations in arbitrage trades. “International traders also do arbitrage between COMEX and MCX. Normally international traders are long on COMEX, short on MCX. Now as the price is going up, the spread is increasing and they are incurring losses. So there is a technical reason as well for this premium,” Jain explained.
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The speculation centers on whether the government might roll back its July 2024 decision to slash customs duty on gold and silver from 15% to 6%, a move initially designed to support the gems and jewellery sector and curb smuggling.
“Now rising gold prices are directly impacting rupee depreciation. The government may hike duty to protect rupee depreciation,” Jain added, pointing to the potential policy rationale behind market fears.On Wednesday, the rupee plunged 67 paise to close at an all-time low of 91.64 (provisional) against the American currency, pressured by persistent foreign fund outflow amid heightened uncertainty and risk-off sentiment in global markets.
Despite the short-term volatility, analysts remain bullish on precious metals for 2026. HDFC Securities noted that “based on the fundamentals and technical setup, gold and silver’s long-term bullish trend seems intact and still has the potential to deliver extraordinary returns in the year 2026.”
However, the brokerage cautioned that “if the government reduces import duties on gold and silver in the upcoming budget, domestic prices could come under pressure and could act as a short-term headwind for domestic prices.”
Given the elevated silver premiums, Jain advised caution. “Given the sharp rise in prices we have told clients to avoid silver. Better to have gold. Those investors having riskier assets in their portfolio, they must allocate more to gold,” he said.
HDFC Securities recommended investors allocate up to 10% of their portfolio to precious metals, with the option to increase exposure based on individual risk appetite, suggesting ETFs as the preferred vehicle for gaining exposure to the asset class.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)