MUMBAI: Bears in gold and silver are in for a rude shock after the government raised import duty on bullion to 15% from 6%, sending prices on the Multi Commodity Exchange (MCX) soaring.
As of 10:30 am, the active gold contract on MCX traded 6.02% higher at ₹1.63 lakh per 10 gm, while silver surged 6.28% to ₹2.97 lakh per kg. Trading on MCX runs from 9 am to 11:30 pm.
Gold and silver contracts on MCX have a maximum daily price limit of 9% in either direction. If international prices move beyond those levels, the exchange can relax the circuit limits in additional 3% bands.
The government on Wednesday raised import duties on gold and silver as part of efforts to curb precious metals imports amid a swelling import bill triggered by the West Asia war.
The duty hike comes days after Prime Minister Narendra Modi urged citizens to defer gold purchases for a year to help cushion the conflict's economic impact.
India imports about 700 tonnes of gold annually, putting pressure on the current account deficit (CAD) at a time when the conflict has driven crude oil prices up 45% to above $107 a barrel.
CAD reflects the gap that arises when a country imports more goods and services than it exports. India typically runs a deficit because it imports more of oil and gold than its chief exports, which include petroleum products, telecom instruments and drug formulations. A wider CAD increases demand for dollars, pressuring the rupee.
In FY26, gold was India’s second-largest import at $71.98 billion, after crude oil at $134.72 billion, according to data from the commerce ministry. It accounted for about 10% of total imports of $715.39 billion. India posted a trade deficit of $312.58 billion in the previous fiscal year.
Short squeeze
Meanwhile, investors holding gold and silver exchange-traded funds (ETFs) are likely to book profits, which could result in gains in ETF prices trailing the sharp rise in futures prices, said Satish Dondapati, fund manager at Kotak Mahindra Asset Management Company.
Unlike ETFs, derivatives can be both bought and short-sold without owning the underlying commodity, making speculative traders particularly vulnerable to sharp price spikes.
“A spate of short covering and margin calls will be the order of the day as the derivatives prices will move up to the extent of the duty hike,” said Naveen Mathur, director (commodities & currencies) at Anand Rathi. “In short, bears will be severely impacted today as this is a permanent hike.”
Gold has outperformed most asset classes, including equities, by a wide margin. For instance, over the past year, the most popular gold ETF, Gold BeES, has delivered an absolute return of 66% at an intraday price of ₹131.6 per unit, compared with a negative 4.56% return for the Nifty, which traded at 23,469.
The active June contract on MCX had 9,530 lots outstanding or open as of Tuesday evening. The active silver contract had 7,693 lots open. There is likely to be a reduction in open positions with price increases as the shorts cover their positions.
Open positions refer to the outstanding buy or sell contracts. Since for every buyer there has to be a seller, the open position means there are 9,530 longs and shorts each on gold in MCX.
However, not all short positions are speculative. Bullion dealers, refiners and jewellers routinely hedge inventory by selling gold and silver futures. Losses on those contracts are likely to be offset by gains in the spot market as prices rise following the duty hike.
According to Surendra Mehta, national president of India Bullion and Jewellers Association, the hike in duty could impact annual demand by 5-10%.