India’s 18.45% Gold Import Tax Joins US Rate Jitters to Pressure Prices Despite Robust Demand

Gold slides on India's hefty tariff hike and fading US rate cut hopes. Yet record Q1 demand and central bank purchases keep long-term bull case intact as $4,380 support holds.

Gold enters a pivotal week caught between two powerful headwinds: a surprise tariff escalation in the world’s second-largest consumer market and a hawkish shift in US monetary policy that has all but extinguished hopes for rate cuts. The metal closed Friday at $4,555.80 an ounce, down 2.6% on the week and 5.4% on the month, though it remains in positive territory year-to-date.

The most dramatic new factor is India’s decision to more than double its effective import duty on gold. Since May 13, the combined levy of customs duty and integrated GST has risen to 18.45% from roughly 6% previously, making the metal significantly more expensive for the country’s price-sensitive buyers. The move came amid pressure on India’s foreign-exchange reserves, exacerbated by higher energy costs linked to the Middle East conflict and disruptions in the Strait of Hormuz. Just days earlier, Prime Minister Modi had publicly urged citizens to voluntarily curb gold purchases.

India tightened further by restricting imports under the Advance Authorisation scheme to a maximum of 100 kilograms per license, ending an era of unlimited duty-free imports for jewellery exporters. The Directorate General of Foreign Trade described the cap as a measure to crack down on misuse of the facility.

Meanwhile, across the Atlantic, the US inflation picture continues to dash any hopes of near-term monetary easing. April’s consumer price index rose 3.8% year-on-year, above the 3.7% consensus forecast and the highest reading since May 2023. Wholesale prices surged at their fastest pace since early 2022, driven largely by energy costs linked to geopolitical supply risks. The market now assigns virtually zero probability to a rate cut in 2026, according to CME FedWatch, and has priced in roughly a 50% chance of a hike by December.

The FOMC minutes due on May 20 will be scrutinised for any signs of deepening division after four members dissented at the last meeting. New Fed Chair Kevin Warsh, a known hawk who registered dissents in his previous role, could reinforce the tightening bias. Higher real yields and a stronger dollar are classic headwinds for gold, and the near-term price action reflects that tension.

Yet beneath the surface, physical demand continues to paint a far more resilient picture. The World Gold Council reported that total global gold demand, including over-the-counter investment, reached 1,230.9 tonnes in the first quarter — a record high and a 2% increase year-on-year. Central banks added a net 244 tonnes during the period, with the National Bank of Poland standing out by raising its holdings by 31 tonnes to 582 tonnes. Retail demand for bars and coins jumped 42% to 474 tonnes, with China alone contributing a record 207 tonnes.

Technically, gold is testing the 0.382 Fibonacci retracement level near $4,540, with the broader bull case considered intact as long as support around $4,380 holds. For the week ahead, the Fed minutes on Wednesday, followed by weekly jobless claims and PMI data on Thursday and the University of Michigan inflation expectations on Friday, will determine whether the correction deepens or stabilises. JP Morgan, for its part, expects gold to reach $5,055 an ounce by the fourth quarter of 2026, suggesting the macro negatives may prove temporary against a backdrop of structural buying by both central banks and individuals.