Gold Navigates a Policy Minefield as Indian Tariff and US Inflation Reshape Demand Dynamics

India raises gold import duty to 15% as US inflation data dims rate-cut hopes; gold hovers near $4,700 amid mixed demand signals.

India has thrown a fresh curveball at the global gold market. The government in New Delhi hiked import duties on gold and silver to roughly 15 percent from 6 percent, effective May 13, in a bid to rein in a ballooning trade deficit. The move follows Prime Minister Narendra Modi’s public appeal for citizens to abstain from gold purchases for a year and comes after Indian gold imports surged 24 percent to $71.98 billion in the current fiscal year. For the world’s second-biggest gold consumer, the tariff represents a serious drag on physical demand.

The policy shift is not the only force weighing on bullion. Hotter-than-expected US producer price data released last week sent a shock wave through rate expectations. The producer price index climbed 1.4 percent in April — more than double the consensus estimate of 0.5 percent — and accelerated to 6.0 percent year-on-year. Goods prices rose 2 percent, with gasoline surging 15.6 percent. The consumer price index had already flashed a warning, rising to 3.8 percent, its highest since May 2023.

The inflation surprise has upended the market’s narrative. Investors have largely priced out any Federal Reserve rate cuts for this year, and the odds of a further hike have jumped to about 39 percent, according to data following the PPI report. The Fed’s benchmark rate sits in a 3.5–3.75 percent range. Higher rates sting gold by raising the opportunity cost of holding a non-yielding asset and typically boost the dollar, adding another layer of pressure.

Against this turbulent backdrop, gold has been trading in a volatile but narrow band near $4,700 an ounce. On Thursday the metal slipped to $4,687.20 before recovering to the $4,707.10 area. Monthly losses stand between 3.24 and 3.64 percent depending on the measurement period, though year-to-date gains of around 8 percent remain intact. The price is roughly 1 percent below its 50-day moving average of $4,740.68, and the relative strength index at 49.8 points to consolidation rather than panic.

Physical demand, however, tells a different story. The People’s Bank of China added another 8 tonnes to its gold reserves in April, marking the 18th consecutive monthly increase and pushing official holdings to 2,322 tonnes. Globally, central banks bought a net 244 tonnes in the first quarter, up 3 percent from a year earlier. The broader market also set records: total gold demand including over-the-counter investment reached 1,230.9 tonnes in Q1 2026, a 2 percent year-on-year rise, according to the World Gold Council. Bar and coin demand jumped 42 percent to 474 tonnes.

India itself is seeing a peculiar paradox. Despite the higher import tax and a near-30-year low in import volumes last April, Indian investors poured money into gold ETFs, with inflows soaring 186 percent to 20 tonnes — a record. The surge suggests retail buyers are bypassing physical bullion for paper products, perhaps anticipating the duty impact. The jewelry and gemstone industry, meanwhile, warns that the steeper tariff could revive smuggling, a problem that had eased after the previous duty cut in mid-2024.

Technically, the market appears to be marking time rather than signaling a trend reversal. The LBMA consensus forecast for 2026 stands at $4,741.97 per ounce, very close to the current spot price, implying that neither exuberance nor a sharp sell-off is priced in.

Where gold goes next hinges on two variables: further US economic data and the geopolitical temperature, particularly the simmering Iran conflict. Short-term headwinds from firm real yields and a strong dollar may persist, but the steady buying from central banks and record ETF flows in India provide a counterweight that has so far capped the correction. The yellow metal remains caught between a hawkish Fed and a structural demand base that refuses to fade.