Gold Sinks Below $4,700 as India’s Import Tax and Stubborn Inflation Counter Geopolitical Fears

The London Bullion Market Association’s morning fixing on Wednesday printed at $4,694.48 per ounce, a drop of roughly 0.44% from Tuesday’s level and the first close below the psychologically important $4,700 mark in several sessions. The decline was no single event – rather an unusual collision of three separate headwinds that simultaneously squeezed the precious metal from different angles.

The most immediate shock came from New Delhi, where India doubled its import duty on gold and silver from 6% to 15% with immediate effect. As one of the world’s largest physical gold consumers, India’s tariff move reshuffles global demand dynamics overnight. Prime Minister Narendra Modi went a step further, publicly urging citizens to refrain from buying gold to help protect the country’s foreign exchange reserves. The combination of a steep tax hike and a moral suasion campaign is expected to curb Indian purchases significantly in the near term.

On the macroeconomic front, Tuesday’s US consumer price index added to the pressure. The headline inflation rate accelerated to 3.8% in April, its highest level in three years, and core CPI also overshot forecasts. Markets now price in a probability of more than 70% that the Federal Reserve will keep policy tighter until at least April 2027, effectively extinguishing any hope of rate cuts this year. Compounding the problem, oil prices near $109 a barrel – driven by the ongoing blockade in the Strait of Hormuz – are feeding inflationary pressures and buttressing the dollar, which makes gold more expensive for overseas buyers.

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Adding a layer of political uncertainty, Kevin Warsh is slated to take over as Fed chair on May 15. The incoming chief is known to favour a different inflation measurement framework than the current leadership, making future monetary policy less predictable. Analysts note that the transition itself introduces a hurdle for gold, as traders struggle to calibrate expectations.

Geopolitical tensions around the Strait of Hormuz remain high after US President Donald Trump said a ceasefire with Iran was on “massive life support” and reports emerged that the National Security Council is weighing military options. The classic safe-haven bid from such uncertainty runs directly into the reality that a prolonged blockade keeps energy prices elevated, which in turn supports the dollar. The net effect is a tug-of-war: gold rallies when fear spikes, then retreats as the inflation channel dominates.

Technically, the yellow metal is testing the 21-day moving average near $4,689. A decisive break below that level could open the door to a slide toward the 200-day line at $4,335, while overhead resistance stands at the 50-day average of $4,749. The relative strength index sits at 50.1, offering no directional clue. On Tuesday, gold briefly dipped under $4,690 before recovering, underscoring the market’s delicate balance. A daily close above $4,775 would brighten the technical picture, but analysts see near-term trading in a $4,675–$4,750 range.

Despite the current weakness, gold remains up roughly 8% year to date. Institutional demand remains robust: global gold exchange-traded funds held $615 billion in assets as of the latest reading, with physical holdings rising to 4,137 tonnes. COMEX net longs slipped 4% to 477 tonnes, but European funds saw solid inflows driven by geopolitical risk and inflation concerns. State Street argues that if oil retreats to $80–85 a barrel, inflation pressure could ease, reviving rate-cut expectations and pushing gold above $5,000. J.P. Morgan forecasts an average price of $5,055 in the final quarter. For now, the next trigger is Wednesday’s US producer price index – a softer print would allow gold to recover toward $4,780, while a hot number could drive it back toward $4,680.

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