Demonetisation

On the evening of November 8, 2016, Prime Minister Narendra Modi announced in a surprise televised address that ₹500 and ₹1,000 currency notes — representing 86% of India's cash in circulation — would cease to be legal tender at midnight. Indians had until December 30 to exchange old notes at banks. The stated goal was to eliminate black money, reduce counterfeiting, and push toward a digital economy.

The immediate disruption was severe. Cash-dependent small businesses, agricultural markets, and daily wage earners were hit hardest. ATM and bank queues stretched for hours. GDP growth slowed visibly in the following two quarters as the cash-dependent informal economy contracted sharply.

Gold reacted with characteristic drama. In the first 48 hours, reports emerged of panic buying as holders of undisclosed cash tried to convert it into gold before the window closed. Jewellery shop prices briefly spiked by ₹5,000–10,000 per 10 grams above market rates. But within days, new restrictions on jewellers accepting old currency collapsed demand, and gold prices returned to normal.

The rupee weakened modestly as economic uncertainty grew and FII flows slowed. In the longer term, demonetisation accelerated the shift toward digital payments — UPI transactions, which barely existed in 2016, grew to billions per month by 2020. This structural change in how Indians transact continues to affect how gold is bought and sold in India.