Govt hikes import duty on gold and silver. What does it mean for MCX gold, silver rates?

The Indian government has raised import duties on gold and silver to 15% from 6%, as part of a strategy to limit foreign purchases and relieve pressure on foreign exchange reserves.

This increase—comprising a 10% basic customs duty and a 5% Agricultural Infrastructure and Development Cess (AIDC)—is likely to dampen demand in the second-largest market for precious metals globally. Simultaneously, it could help reduce the trade deficit and support the rupee — one of Asia's weakest-performing currencies.

Nevertheless, industry experts warn that elevated duties might lead to a rise in smuggling, a trend that had diminished following tariff reductions in mid-2024, according to reports.

This announcement follows Prime Minister Narendra Modi's appeal to citizens to refrain from buying gold for a year to safeguard foreign exchange reserves.

India relies largely on imports to fulfil its gold consumption needs. In the last financial year, India's gold imports jumped 24% to hit an all-time high of $71.98 billion in 2025-26.

The demand for gold, especially for investment, has increased following a recent surge in prices and disappointing returns from equities over the past year.

What's the impact of the rise in import duty?

According to the World Gold Council, inflows into India's gold exchange-traded funds (ETFs) rose 186% year-on-year in the March quarter, totalling a historic 20 metric tons.

Industry estimates indicate that an increase in duty could lead to a decline in gold import volumes by approximately 10-12%. Notably, around 50% of India's jewellery demand is currently met through the exchange and recycling of old gold, highlighting a gradual shift away from new bullion imports towards reuse.

Reportedly, the import demand for jewellery consumption has already dropped by nearly 20% year-on-year, as high prices have deterred discretionary buying. In response, the jewellery sector is increasingly focusing on producing lower-weight, lower-carat jewellery to ensure affordability amid record-high bullion prices.

The government's overarching message is not against owning gold, but rather aimed at curbing excessive new imports during a critical macroeconomic phase. India is believed to possess around 20,000 tonnes of gold stored in households. More effective use, recycling, exchange, and monetisation of existing gold in homes could help lessen reliance on imported gold and ease the strain on the rupee and foreign exchange reserves.

The goal is to gradually transform dormant household gold into productive domestic liquidity, while reducing unnecessary dollar outflows and enhancing long-term economic stability, according to industry experts.

Ajay Kedia, Director, Kedia Advisory, said that India has raised import tariffs on gold and silver to 15% from 6% in an effort to reduce overseas purchases of precious metals and ease pressure on foreign exchange reserves. The revised structure includes a 10% basic customs duty along with a 5% Agriculture Infrastructure and Development Cess, significantly increasing the effective import tax burden.

According to Kedia, the move could weaken bullion demand in the world’s second-largest consumer of precious metals while helping narrow the trade deficit and supporting the rupee, one of Asia’s weakest-performing currencies. However, industry officials cautioned that higher import duties may encourage smuggling, which had declined after tariff reductions introduced in mid-2024.

On Tuesday, 12 May, MCX gold and silver witnessed significant fluctuations, initially rising before dropping in the afternoon due to a recovering dollar, with gold trading at approximately ₹1,53,200 per 10 grams and silver at around ₹2,74,000 per kg. Ongoing geopolitical tensions in the Middle East kept bullion prices high, even though gold briefly exceeded ₹1,54,000 in the early morning.

Technical Views for today

According to Anuj Gupta, MCX gold prices may rise to ₹1.68 lakh to ₹1.70 lakh per 10 grams, while silver prices may hit the ₹3 lakh per kg level.

Ponmudi R, CEO of Enrich Money, said that for MCX Gold, immediate resistance is seen in the ₹1,54,750– ₹1,55,000 zone, with a sustained move above this potentially pushing prices towards ₹1,55,500– ₹1,56,000. On the downside, ₹1,53,000 remains key support, below which prices could slip back into the ₹1,51,500– ₹1,53,500 range.

For MCX Silver, he noted that immediate resistance lies at ₹2,84,000– ₹2,85,000, and a breakout above this level could extend the rally towards ₹2,87,000– ₹2,90,000. On the downside, ₹2,77,000 is the immediate support, followed by stronger levels at ₹2,75,000 and ₹2,71,000.

Short to Medium-Term Effects of the Duty Hike

According to Nirpendra Yadav, Sr. Commodity Research Analyst at Bonanza, there is a strong domestic premium, a short-covering rally, and widening arbitrage between MCX and COMEX. On the other hand, profit-taking can emerge, demand destruction may occur at higher prices, jewellers may reduce purchases, and physical premiums may cool later.

“Higher customs duty can reduce official bullion imports, and this may support the Indian rupee and current account deficit. However, slow jewellery demand may increase chances of smuggling,” said Yadav.

Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.