India’s Tariff Shock and Sticky US Inflation Pin Gold in a Two-Sided Squeeze
Published on 05/14/2026 at 19:21 | Redaktion boerse-global.de
India’s decision to more than double its import tariff on gold and silver has thrown a sharp headwind into the world’s second-biggest physical market, just as persistent US inflation clouds the outlook for Federal Reserve policy. The combination has left bullion traders struggling for direction.
Effective May 13, New Delhi raised the import duty on gold and silver to 15%, up from 6%. The move is aimed at stemming a record outflow of foreign exchange. India’s gold imports had surged 24% in the current fiscal year to $71.98 billion, straining the trade balance and depleting currency reserves. The pressure is compounded by elevated oil prices linked to the ongoing US-Iran standoff.
The tariff hike follows an extraordinary plea from Prime Minister Narendra Modi, who urged citizens to abstain from gold purchases for a full year. The government’s desperation underscores how deeply the import binge has cut into India’s external accounts.
Yet the measure risks unintended consequences. Industry groups warn that higher duties could revive smuggling, which had ebbed after the previous tariff cut in mid-2024. History suggests that even steep tax increases rarely dent India’s cultural appetite for gold.
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But that’s only half the story. On the other side of the Atlantic, the US inflation picture has darkened again. The Consumer Price Index rose 3.8% in April from a year earlier, the highest since May 2023. Even more alarming was the Producer Price Index, which jumped 1.4% month-over-month — the largest monthly gain since March 2022. On an annual basis, producer prices accelerated to 6.0%.
Those numbers have reset interest-rate expectations. The market now sees virtually no chance of a rate cut in 2026, and the probability of an additional hike has climbed to about 39% following the PPI release. The yield on the 10-year US Treasury note has edged toward 4.5%, making the non-yielding precious metal less attractive to institutional investors.
Gold traded at $4,707.10 an ounce on Thursday, edging slightly higher on the day but still nursing a monthly loss of 3.24%. The distance from the 50-day moving average stands at just 0.72%, signaling a lack of clear momentum. Year-to-date, bullion remains up 8.41%.
For Indian investors, the higher duty has paradoxically boosted demand for paper alternatives. Gold-linked exchange-traded funds in the country saw inflows surge 186% in the first quarter to 20 tonnes, a record, according to the World Gold Council. That suggests the tariff is rerouting rather than destroying demand.
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On the physical side, the outlook remains nuanced. The World Gold Council reported that global gold demand including OTC investment hit a record 1,230.9 tonnes in the first quarter of 2026, up 2% year-on-year. Yet much of that strength came before the tariff shock. India’s import volumes had already fallen to a near-30-year low in April, well before the new levy took effect.
Analysts see the current price range as a tug-of-war between geopolitical anxiety and monetary tightening. Conflicts such as the Middle East crisis continue to underpin safe-haven buying, but high US interest rates cap any rally. For now, the market appears anchored around $4,700, awaiting the next catalyst from either the Fed or New Delhi.
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