Gold Caught in a Double Squeeze as India’s Tariff and a Hawkish Fed Handover Converge

Gold drops to $4,538.90 after India doubles import duty to 15% and new Fed Chair Warsh signals tight policy, with monthly loss reaching 5.7%.

The yellow metal is taking a beating from two sharply contrasting directions this week. While India slammed the door on physical demand with a punitive import levy, the Federal Reserve’s new leadership is cementing a high-rate environment that strips the non-yielding asset of its appeal. The result: gold tumbled 2.50 percent on Friday to $4,538.90, dragging its monthly loss to roughly 5.7 percent.

India’s Tariff Bomb Disrupts the World’s Second-Biggest Market

New Delhi stunned the bullion trade by hiking the import duty on gold and silver to 15 percent from the previous level, more than doubling the tax. Prime Minister Narendra Modi took the rare step of publicly urging citizens to stop buying gold, a move aimed at stemming a severe drain on the country’s foreign-exchange reserves. The government’s desperation reflects the scale of the problem: Indian gold imports hit a record of nearly $72 billion in the last fiscal year, and the central bank’s reserves shrank by almost $38.5 billion in just ten weeks.

Domestic gold futures leapt more than 7 percent on the tariff announcement, but the move is already drawing criticism from the trade body All India Gems and Jewellery Council, which warns the sharp tax increase will hammer the industry and revive smuggling in the world’s second-biggest gold market. To close existing loopholes, the government also tightened duty-free import allowances for jewellery exporters.

A New Fed Chair Steps Into a Sticky Inflation Trap

Across the Atlantic, the monetary-policy backdrop shifted further against gold with the formal handover at the Federal Reserve. Kevin Warsh took the helm on Friday after the Senate confirmed him by a 54-45 vote, replacing Jerome Powell. Warsh inherits an economy where consumer prices rose 3.8 percent in April, the hottest reading since May 2023 — a level that sharply limits the Fed’s ability to ease.

Despite President Donald Trump’s longstanding calls for lower rates, Warsh has historically favoured tighter policy. He had previously criticised Powell for maintaining loose conditions too long after the pandemic. While Warsh has signalled he sees room for cuts at some point, he insists decisions will remain independent of the White House. For now, the market sees almost no chance of a move at the June 16–17 meeting: the CME Group puts the probability of holding the federal funds rate at 3.50–3.75 percent at 95.8 percent, with only a 4.2 percent chance of a cut. By December, traders have priced in a roughly 30 percent probability of a rate hike.

Geopolitical Embers Keep Inflation Elevated

The inflation headache is not purely domestic. US wholesale prices accelerated faster than expected in April, and geopolitical tensions remain unresolved. While trade talks in China produced positive signals for Washington and Beijing, the Iran negotiations have stalled. The Strait of Hormuz remains a flashpoint for oil flows, and higher energy costs feed directly into consumer prices. This sticky inflation outlook leaves the Fed with little room to pivot, further eroding gold’s investment case.

Technical Weakness and ETF Outflows Add to the Gloom

The price action reflects the deteriorating macro picture. Gold is now trading below its 50-day moving average of $4,727.57, and the weekly loss stands at 3.86 percent. Exchange-traded fund flows underscore the broader shift: the SPDR Gold Shares reported holdings of 1,038.28 tonnes as of May 12, adding just 5.08 tonnes over five trading days. That small uptick does little to offset a grim year-to-date picture — the fund has seen net outflows of roughly $4.5 billion since January, with holdings declining by about 32 tonnes.

The next near-term catalyst arrives later Friday with the Empire State Manufacturing Index for May, due at 14:30 GMT. A strong reading would reinforce the case for steady or tighter policy, likely adding further pressure on gold. For now, the combination of India’s demand-destroying tariff and a Fed that is in no hurry to cut leaves the precious metal trapped in a two-sided squeeze.