Rupee at risk of 88.8 as gold imports spike - What it means for your money

The spike is overwhelmingly due to festive-linked gold imports that will normalise. A strong services surplus, lower oil prices, and an improving tariff outlook mean India's CAD will likely fall below

India’s trade deficit surged to an all-time high in October 2025 as gold and silver demand exploded ahead of the festive season, raising fresh concerns for the rupee even as the underlying external sector remains broadly stable.

 

According to the latest economic assessment by Elara Capital, India’s merchandise trade deficit widened to $41.7 billion in October, sharply higher than September’s $32.16 billion, almost entirely due to a festive-driven spike in gold and jewellery imports. Gold and silver imports jumped over 200% year-on-year, front-loading demand that normally spills into November. Excluding gold, the trade deficit would have been a more manageable $27 billion.

 

Imports hit a record $76.1 billion, while exports contracted 11.8% year-on-year to $34.3 billion. Electronics and marine products were rare bright spots, but tariff-sensitive exports continued to struggle under US tariff pressures.

 

Despite the blowout month, economists remain confident that India’s current account deficit will stay benign, trimming their FY26 estimate to 0.7–0.8% of GDP from 1.1% earlier. Lower crude prices, steady services exports (up 12% YoY to $38 billion — the highest ever), and a potential US–India trade deal later this fiscal provide key buffers.

 

Rupee Outlook: Weak Near Term, Some Relief If US Deal Lands

 

The rupee, however, faces near-term headwinds.

 

A record trade deficit, weak FII flows and tariff uncertainty are expected to keep pressure on the currency, with USD-INR projected to oscillate between 88.3–88.8 in the coming weeks. RBI’s decision to extend the export value realisation period from nine to fifteen months may also reduce dollar inflows temporarily, creating USD tightness and adding pressure on the rupee, noted the report. 

 

If the US–India trade deal materialises in Q3, analysts at Elara Capital expect USD-INR could strengthen towards 87.5, though gains may be capped by uncertainty around US Federal Reserve policy. A delay in Fed rate cuts could even trigger short bursts of dollar strength.

 

"We see USD-INR oscillating between 88.3-88.8 in the near term. If the trade deal materialize, we don’t rule out the USDINR moving towards 87.5 level over next 3 months. Appreciation pressure may remain capped as the uncertainty around Fed’s policy path lingers – if the Fed can’t cut in Dec-25 meet, the USD can see some near-term upside.

 

Key risks to our external outlook include tightening financial conditions in Japan with surging bond yields pressuring EM risk sentiments and hence in turn capital flows. From merchandise trade front, we believe peak trade / tariff uncertainty has passed and risks if any are likely to emerge from slowing global growth," said Garima Kapoor, Economist at Elara Capital.

 

What This Means for Investors

 

• Gold’s role in the trade deficit is temporary, but the metal may remain volatile near-term as demand normalises post-festive season.
• Rupee weakness is likely in the short term, benefiting those with overseas assets or income.
• Export-oriented companies may see earnings support if INR stays weak.
• Global risks remain — tighter financial conditions in Japan or slowing global growth could pressure EM currencies and flows.

 

Why Gold Imports Matter for the Rupee

 

India is one of the world’s largest importers of gold, and gold inflows have a direct impact on currency markets. When gold imports spike:

 

• Dollar demand increases sharply, worsening short-term supply.
• Trade deficit widens, signalling external stress.
• Importers hedge aggressively, pushing up forward premiums.
• RBI’s intervention bandwidth narrows, especially if it allows exchange rate flexibility.
• This is exactly what played out in October. The report warns that rupee pressures are likely to continue:

 

“Headwinds to the INR persist in the near term, owing to ongoing uncertainty around tariffs, higher trade deficit, and weak FII inflows.”

 

What Should Investors Do? 

1. Gold: Expect volatility, not a collapse

 

Gold demand was front-loaded; the report expects gold and silver imports to normalise as Q3 progresses.

 

For investors:

 

• Stay invested in gold as a hedge; rupee weakness supports domestic prices.
• Expect consolidation as festive demand ebbs.
• Avoid aggressive fresh buying unless USD-INR dips towards 87.5.

 

2. Rupee: Brace for near-term weakness

 

Investors with USD expenses (travel, education) should:

 

• Advance partial dollar purchases
• Use the 88.3–88.8 band as a hedge-entry zone

 

NRIs and global investors:

 

• Rupee weakness increases repatriation value
• Can increase India allocations strategically

 

3. Export-linked equities: Short-term winners

 

Sectors that benefit from rupee weakness:

 

• IT services
• Pharmaceuticals
• Speciality chemicals
• Marine exports and electronics (already strong)

 

4. Import-heavy sectors: Temporary margin pressure

 

• Oil & gas
• Consumer electronics
• Auto companies dependent on imported components

 

But gold and silver’s import spike is one-off, not persistent.

 

5. Debt investors: Watch global risk conditions

 

Japan’s yield surge and Fed ambiguity are risks, but India’s external buffers remain strong. Short-duration debt remains attractive.