Increase in gold tariffs in India stimulates grey market and harms organized trade

The World Gold Council reported that the increase in customs duties led to a widening price gap, which contributed to the growth of gold imports through the grey market and negatively affected the structure of organized players in India.

Impact of Tariff Increase

After the Indian government raised import duties on the precious metal at the beginning of this year, there has been an increase in the unofficial inflow of gold. This has expanded the margin for grey market operators and damaged organized market participants, as noted by the World Gold Council on Thursday.

India, the world's largest consumer of gold after China, more than doubled its import duties, setting them at 15 percent on May 13. This measure was adopted to curb demand, reduce the trade deficit, and lower pressure on the rupee.

Arbitrage and Market Consequences

Sachin Jain, Executive Director of WGC India operations, told Reuters that 'the arbitrage is enormous.' He specified that with a duty rate of 15 percent and GST of 3 percent, there is an 18 percent difference, which 'almost stimulates an entire industry.' Jain also emphasized that the influx of gold through the grey market and the resulting violations are harming organized players.

Smuggling and Demand Data

The government previously informed parliament that Indian law enforcement agencies seized nearly twice as much gold between May 13 and June 30 compared to the period from April 1 to May 12, reaching 160.91 kg versus 86.16 kg.

According to data collected by WGC, gold smuggling decreased to 69.2 metric tons in 2024 compared to 156.1 tons the previous year, and then fell even further in 2025 to 20.4 tons after India reduced import duties on gold. However, the recent resurgence of the grey market indicates that illegal imports in 2026 could exceed 100 tons, industry officials told Reuters last month.

Import and Demand Dynamics

In a report published on Thursday, WGC indicated that net gold imports into India in the June quarter decreased by 23 percentage points year-on-year, amounting to 98.1 tons. This was the lowest quarterly figure since September 2020, when demand was constrained by pandemic-induced lockdowns.

Gold demand in the June quarter decreased by 6 percent compared to the previous year, reaching 131.4 tons. This was due to the decline in jewelry purchases outweighing strong investment demand. Jain suggested that demand is likely to improve in the second half of the year if prices remain stable, as many consumers who missed the previous price hike are expected to return to the market.

www.khaleejtimes.comJuly 23, 05:00

Analysts predict gold trading in a narrow range in the second half of the year due to rising US yields

Analysts believe that gold will not reach historical highs in the second half of 2026. This is because higher interest rates in the US, increased treasury bond yields, and a strengthening dollar are putting pressure on the precious metal, despite persistent geopolitical tensions that support demand for safe-haven assets.

Short-term outlook for gold

Under current market conditions, gold is expected to trade within a limited price corridor until the end of the year. Any significant rise will depend on changes in monetary policy expectations or signs of economic slowdown, according to analysts.

Expert opinion on the impact of rates

Vijay Valecha, Director of Investments at Century Financial, noted that stronger-than-expected economic growth in the US and persistent inflation have led investors to anticipate a tighter Federal Reserve policy, which negatively affects the price of gold. He predicts that the precious metal will remain predominantly within current levels until the end of the year.

The CIO explained that if any major catalyst appears, such as a reversal in monetary policy expectations or an economic slowdown, gold could experience an upward trend reversal. Until then, fluctuation within the set range is expected.

Valecha also highlighted the inverse relationship between gold and the US dollar: a strengthening greenback usually lowers the price of bullion. Furthermore, higher treasury yields reduce the attractiveness of non-yielding assets like gold, increasing the opportunity cost of holding this metal.

Geopolitics and market dynamics

Although geopolitical tensions continue to support demand for gold, some experts believe that the current conflict in the region has created a different dynamic compared to previous crises. Ole Hansen, Head of Commodity Strategy at Saxo Bank, stated that rising oil prices have increased inflation expectations, which has strengthened the US dollar and kept bond yields high, offsetting much of gold's traditional appeal as a safe haven.

According to Hansen, gold will trade in a wide range of $3900 to $4200 per ounce until inflation and interest rate issues become clearer. He added that attracting a new wave of investment demand will likely require a sustained breakthrough above the $4500 mark, as many investors are still awaiting greater clarity regarding the Middle East, inflation, and interest rate prospects.

Hansen also warned that until financing cost forecasts stabilize or decrease, non-yielding assets like gold are likely to face periodic headwinds.

Long-term prospects remain optimistic

Despite short-term difficulties, analysts remain optimistic about the long-term prospects for gold. Avad Issavi, Regional Press Secretary and Market Analyst at iFOREX, pointed out that continued central bank purchases, high government debt, and the need for portfolio diversification continue to support the precious metal.

However, he noted that achieving new record highs will likely require a combination of monetary policy easing, stable inflation, and persistent geopolitical uncertainty, rather than a single factor. Valecha also mentioned that in the UAE, higher prices are changing consumer behavior: consumers are increasingly opting for smaller weight jewelry or purchasing bullion and coins as a long-term investment, while investors continue to view gold as an important tool for portfolio diversification.