Gold's Two-Front War: Indian Import Costs Double as a New Fed Chief Takes the Helm

Gold falls 4% as India doubles import duty to 18.45% and new Fed Chair Warsh faces sticky inflation; rate cut odds near zero, energy crisis adds uncertainty.

Gold enters a pivotal week squeezed by two powerful forces: a dramatic tariff hike in India — the world’s second-largest bullion market — and the hawkish debut of Kevin Warsh as Federal Reserve chair. The metal closed Friday at $4,555.80 an ounce, down 4% on the week and more than 6% over the past month, as policy headwinds overwhelm geopolitical safe-haven demand.

India swung the axe on May 13, raising its effective import duty on gold to 15% from 6%. Add integrated goods and services tax, and the total levy now stands at 18.45% — more than double the previous level. The move, aimed at shoring up depleted foreign-exchange reserves amid surging energy-import costs, came just days after Prime Minister Modi publicly urged citizens to voluntarily curb gold purchases. The Directorate General of Foreign Trade tightened the screws further the next day, capping duty-free imports under the Advance Authorisation scheme at 100 kilograms per permit, up from no limit. The restriction targets alleged abuse by jewelry exporters.

The tariff shock compounds pressure from across the Atlantic, where sticky inflation has all but extinguished hopes for near-term rate cuts. The US consumer price index rose 3.8% year-on-year, well above the Fed’s 2% target, while wholesale prices in April posted their biggest jump since 2022. The CME FedWatch tool now assigns a near-zero probability to a June rate cut and prices in roughly a 50% chance of a hike by December. The 30-year Treasury yield surged almost 11 basis points on Friday to 5.121%, driving real yields higher and further diminishing the appeal of the non-yielding metal.

Warsh took the Fed’s helm after a 54-45 Senate vote that split largely along party lines. The incoming chair inherits a central bank that has held its policy rate at 3.50%-3.75%, with futures markets no longer pricing any rate cuts for 2026. The FOMC minutes from the May meeting, due May 20, will be closely watched: four dissenting votes at the last gathering add unusual weight to the record.

Energy markets add a wild card. Brent crude has surged 74% since the start of the year as the Strait of Hormuz remains blocked, jolting inflation expectations higher. G7 finance ministers and central bankers meet Monday and Tuesday in Paris to discuss the crisis, with Eurogroup President Kyriakos Pierrakakis calling the reopening of the waterway "of the highest importance." For gold, the interplay is complex: geopolitical risk bolsters safe-haven demand, but rising energy costs feed the rate environment that weighs on prices.

Structurally, demand remains robust. Central banks added a net 244 tonnes of gold in the first quarter, and total global gold demand including over-the-counter investment hit a record 1,230.9 tonnes — up 2% year-on-year. Bar and coin demand reached the second-highest quarterly level on record. The World Gold Council expects official-sector purchases of 700-900 tonnes for the full year, while Goldman Sachs last month set a 2026 target of $5,400 an ounce.

Technically, the metal is testing the 0.382 Fibonacci retracement near $4,540, with a key support zone around $4,380. The relative strength index sits at 49.8, within neutral territory, and gold is 3.65% below its 50-day moving average — indicating a market that is bruised but not panicked. It now trades roughly 16% below the 52-week high of $5,450.

JP Morgan looks for a recovery to $5,055 by the fourth quarter of 2026, contingent on a reversal in rate expectations. For now, the metal is caught between the dual drag of India’s tariff wall and a hawkish Fed — while the Hormuz crisis keeps the safe-haven bid alive. How those forces balance will depend on whether Paris can unlock the strait and whether Warsh’s first signals tilt toward patience or panic.