Gold and silver prices are in focus as the Indian government has raised the import duty on both precious metals from 6% to 15%, effective immediately. The decision, announced via government notifications on Wednesday, aims to curb imports and support the rupee at a time when it is depreciating. The move comes within days of Prime Minister Narendra Modi urging citizens to refrain from purchasing gold for a year to help conserve foreign exchange reserves.
Impact on Demand and Trade Deficit
The higher duties are expected to weigh on demand in India, the world's second-largest consumer of precious metals. At the same time, they could help contain the trade deficit and provide some support to the rupee, which has been among Asia's weakest-performing currencies. However, industry participants have cautioned that steeper import taxes may once again encourage illegal inflows of gold, a trend that had moderated after tariffs were lowered in mid-2024.
Expert Views on Duty Hike
Surendra Mehta, national secretary of the India Bullion and Jewellers Association, said the increase was largely expected as the government looks to contain the current account deficit. He added that elevated gold and silver prices could further impact consumer demand.
Market Reactions and Global Cues
Spot gold prices traded in a narrow range during early Asian hours on Wednesday, with investors remaining cautious ahead of a crucial US-China summit in Beijing and closely monitoring the evolving situation in the Middle East conflict. Spot gold was largely unchanged at $4,713.39 per ounce at 0100 GMT, while US gold futures for June delivery advanced 0.7% to $4,721.80.
Oil Prices and Inflation Concerns
Oil prices eased on Wednesday after registering gains for three consecutive sessions, with investors watching developments linked to the fragile ceasefire surrounding the Iran conflict. Economic data showed that US consumer inflation accelerated further in April, with the yearly inflation rate recording its sharpest rise in three years. The figures reinforced expectations that the Federal Reserve may keep interest rates steady for an extended period.
Political Developments: Trump-Xi Meet in Focus
US President Donald Trump said on Tuesday that he does not expect to require China's assistance in resolving the Iran conflict, even as prospects of a durable peace agreement weakened and Tehran tightened control over the Strait of Hormuz. US Treasury Secretary Scott Bessent said President Trump and Chinese President Xi Jinping are expected to discuss the Iran conflict. He also called on China to participate in efforts aimed at reopening the Strait of Hormuz for global shipping.
Revised Duty Structure
Under the revised structure, the government has imposed a 10% basic customs duty along with a 5% Agriculture Infrastructure and Development Cess (AIDC) on imports of gold and silver, taking the overall effective duty to 15% from 6%. India has also taken several recent steps to restrain gold imports. Authorities had introduced a 3% integrated goods and services tax (IGST) on gold and silver imports, prompting banks to temporarily suspend imports for more than a month. As a result, gold imports in April dropped to levels not seen in nearly three decades. Imports later resumed after banks began paying the 3% IGST, but bullion dealers said the latest hike in customs duties could once again reduce imports sharply.
Demand for Gold as Investment Asset
Demand for gold, especially as an investment asset, has grown in India amid rising prices and weak returns from equities over the past year. According to the World Gold Council, inflows into India's gold exchange-traded funds (ETFs) jumped 186% year-on-year during the March quarter to a record 20 metric tonnes.
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