Gold and silver prices faced downward pressure in global and domestic markets on Monday as escalating geopolitical tensions in the Middle East drove crude oil higher, fueling inflation worries and expectations of prolonged higher interest rates.
Gold fell 1.1% to $4,488.99 per ounce early in the session, marking its lowest level since March 30. US gold futures for June delivery dropped 1.5% to $4,493.30.
The weakness followed a drone attack that sparked a fire at a nuclear facility in the United Arab Emirates, heightening concerns. Saudi Arabia reported intercepting three drones, while US President Donald Trump urged Iran to act quickly as efforts to resolve the US-Israel conflict appeared to stall. Bullion, which yields no interest, typically loses attractiveness when central banks are expected to maintain elevated rates to fight inflation.
In India, prices came under additional strain from recent government measures to curb imports and manage foreign exchange outflows. Just days after raising customs duties on gold and silver from 6% to 15% (pushing the effective rate above 18% with IGST), authorities shifted silver to the restricted category on Saturday. This requires licensing for imports, as notified by the Directorate General of Foreign Trade (DGFT). The policy change covers silver, including variants plated with gold or platinum, and took immediate effect.
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Exceptions apply to 100% Export Oriented Units (EOUs) and Special Economic Zone (SEZ) units, provided the material is not sold domestically. The steps aim to reduce non-essential imports and ease pressure on the country’s external account.
Analysts weighed in on the developments. Jateen Trivedi, VP Research Analyst for Commodities and Currency at LKP Securities, noted that last week gold on the Multi Commodity Exchange (MCX) rose nearly 4% to around Rs 1,58,000 per 10 grams, largely supported by the duty hike despite softer international markets. He described the silver restrictions as tighter controls rather than a full ban, with imports likely routed through approved channels like RBI-authorised banks and recognised entities.
Pranav Mer, Vice President at JM Financial Services Ltd, highlighted how stronger-than-expected April inflation data from India, China, and the US, combined with a stronger dollar and rising bond yields, contributed to last week’s pause in gold gains. Crude oil climbed 8-10% and stayed above $100 per barrel amid uncertainties over US-Iran developments and risks to the Strait of Hormuz.
Last week, MCX gold futures gained Rs 6,017 (3.94%) to close at Rs 1.58 lakh per 10 grams, while silver futures rose Rs 9,964 (3.8%) to Rs 2.71 lakh per kg.
Prime Minister Narendra Modi has encouraged reduced unnecessary gold purchases for the next year to conserve foreign exchange for critical imports like crude oil. Market participants will continue monitoring rupee movements, oil prices, global indicators, and the US Federal Reserve transition.
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