Gold and Silver Demand May Slow After Import Duty Hike, Experts Warn of Price and Smuggling Risks

Rising import duties on gold and silver could significantly impact consumer demand, jewellery sales, and bullion imports in India during the current financial year, according to market experts and commodity analysts. Industry observers believe the government’s latest decision to increase customs duty on precious metals may push domestic prices even higher, making gold and silver purchases more expensive for consumers.

Experts from the bullion and commodities sector estimate that demand for gold and silver could decline by nearly 10% in the coming months due to the increased cost burden on buyers. The move comes at a time when international uncertainties, geopolitical tensions, and already elevated bullion prices are affecting global commodity markets.

Higher Duty May Reduce Jewellery Demand

According to India Bullion and Jewellers Association National Secretary Surendra Mehta, the higher import duty is likely to reduce overall jewellery demand and impact retail buying sentiment.

He explained that rising import costs would directly increase the landed price of gold and silver in the domestic market. As a result, jewellery purchases may slow down, especially among middle-class consumers already dealing with high inflation and rising living expenses.

Industry estimates suggest that jewellery business activity could witness a decline of around 5% to 7%, while total demand for precious metals may fall by approximately 10% during the financial year.

Mehta also expressed concerns that higher duties could encourage illegal gold imports and smuggling activities. According to market experts, when official import costs rise sharply, grey market operators often attempt to take advantage of the price difference between domestic and international markets.

Government Aims to Control Import Pressure

Analysts believe the government’s decision is intended to reduce pressure on foreign exchange reserves and limit rising import bills.

Gold imports account for a significant share of India’s total imports, and higher duties are often used as a tool to discourage excessive inflows of precious metals.

Experts say restricting bullion imports may support the Indian rupee and help manage the current account deficit in the medium term. However, they also warn that the policy could have unintended side effects if domestic prices rise too sharply.

Some analysts noted that consumers facing financial stress may increasingly prefer gold loans instead of purchasing new jewellery, especially during periods of high prices.

Impact on MCX Gold and Silver Prices

Commodity analysts observed an immediate reaction in prices on the Multi Commodity Exchange of India (MCX) after the duty hike announcement.

According to commodity market expert Nirpendra Yadav, higher import duty usually causes domestic bullion prices to rise quickly because imported gold and silver become more expensive.

He explained that MCX futures contracts adjust rapidly to reflect increased import costs and domestic premiums.

As a result, Indian prices often trade above international benchmark prices such as COMEX and LBMA rates.

On May 13, MCX gold futures for June delivery reportedly climbed above ₹1.62 lakh per 10 grams, while silver futures for July delivery surged close to ₹2.97 lakh per kilogram after the announcement.

Analysts say even if international gold prices remain stable, higher customs duty alone can continue supporting elevated domestic prices in India.

Short-Term Outlook for Gold and Silver

Market experts believe the short-term outlook may remain volatile for both gold and silver.

In the immediate phase, higher duties could strengthen domestic premiums and trigger short-covering rallies in the commodity market. Increased price differences between Indian and international markets may also create arbitrage opportunities for traders.

However, rising prices may eventually weaken consumer demand.

Jewellery retailers could reduce fresh purchases if buyers postpone spending due to expensive rates.

Physical market premiums may also soften later if retail demand slows significantly.

Medium-Term Risks and Smuggling Concerns

In the medium term, experts expect official bullion imports to decline because of higher landed costs. While this may help the government control foreign exchange outflows, analysts caution that smuggling risks could increase once again.

Industry observers point out that illegal gold inflows had reduced after previous duty cuts, but the latest increase could revive unauthorized trading channels.

According to data referenced by the World Gold Council, every 1% rise in import duty can reduce consumer gold demand by nearly 6.4 tonnes annually.

Market research experts estimate that the latest cumulative increase in duty rates could potentially reduce annual gold demand by more than 50 tonnes if prices remain elevated for an extended period.

Consumer Buying May Remain Weak

Analysts believe consumer sentiment may remain cautious as gold and silver prices continue trading near record highs. Wedding season demand, festive buying, and investment purchases could all be affected if domestic bullion prices keep rising.

Experts advise investors and consumers to monitor both international commodity trends and domestic policy decisions before making major buying decisions in precious metals.

While the duty hike may support government efforts to reduce import pressure, the precious metals market could continue witnessing volatility, weaker retail demand, and higher price fluctuations over the coming months.