Things are topsy-turvy right now in the world’s top gold market, India. Where prices are rising, but warnings are emerging about further big declines in gold imports as 2016 continues.

Platts reported yesterday that gold prices across India have been under strong upward pressure. With demand starting to pick up ahead of the fourth quarter wedding and festival season.

That’s caused discounts in Indian prices to narrow considerably in relation to world rates. This past July, gold in India was selling as much as $100 per ounce below world prices — but that discount has reportedly been slashed to as little as $10/oz during the past week of trading.

Gold sellers told Platts they expect the discount will narrow to single-digits this week. With India’s gold price likely to return to parity in the “near term”.

That in itself is good news for the gold market. But there’s one problem — local traders are saying that higher prices in India may not result in higher imports coming into the country.

That’s because sources say a large inventory of gold has built up in Indian trading houses. Particularly because of a 42-day national jewellers strike that completely shut down gold sales across India during March and April.

Higher prices are therefore simply bringing supply out of inventory — rather than encouraging fresh imports. Some sources even told Platts they believe India’s gold imports could be “zero” for the remainder of 2016.

That forecast could be overly pessimistic. But it does jive with numbers in India’s silver market — where recent data showed that January to July imports were down over 50% as compared to 2015. With traders blaming a “supply overhang due to unsold inventories” for the big drop.

If silver has been piling up to that degree, it’s very possible the same is happening in gold. Watch for further appreciation in the local gold price — and for import stats at the end of the month to see if shipments are indeed declining.

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