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Informist, Wednesday, May 20, 2026

 

By Afra Abubacker

 

NEW DELHI – The recent hike in import duty on gold and silver may only temporarily suppress discretionary demand, as corrections in international prices will quickly attract fresh buying amid strong investor demand and de-dollarisation trends, N.S. Ramaswamy, head of commodities at Ventura Securities, said.

 

"The initial knee-jerk reaction is that there is suppressed demand for discretionary purchases. But once international prices give opportunities for fresh compulsive entry levels, buying or importing would rise despite the duties," Ramaswamy told Informist in an interview.

 

Last week, the government hiked the import duty on bullion to 15% from 6% to reduce India's import bill and ease the pressure on foreign exchange reserves. The cost of gold imports to the exchequer was close to $72 billion for FY26, which is almost 10.0-10.5% of the foreign exchange reserves, he said.

 

While the higher duty may dissuade some retail customers, jewellers are likely to cushion the impact by reducing making charges or offering discounts, especially if they have high inventories imported at the earlier duty regime. "However, for fresh imports under the higher duty structure, the burden will eventually fall on consumers," he said.

 

Though Ramaswamy sees gold prices undergoing some correction in the short term, he expects these to rebound in the next six months amid sustained purchases by central banks and de-dollarisation trends. By the end of 2026, Ramaswamy sees gold prices rising 15% from current levels to $5,200 levels on COMEX. In India, he expects gold prices to rise to INR 180,000 per 10 grams on the Multi Commodity Exchange.

 

Recently, JP Morgan cut its gold price outlook for 2026 to $5,243 from $5,708 projected earlier amid persisting inflationary fears, rising US Treasury yields, and a stronger dollar. Though the bank expects a weaker price performance in the first half of 2026, it has retained its bullish medium-term outlook for gold for the latter half due to strong investor demand and purchases by central banks.

 

Gold prices have fallen over 14% to $4,543.8 per ounce after the US and Israel jointly attacked Iran on Feb. 28, and declined 19% from the record high levels of $5,600 hit in late January. While geopolitical uncertainties typically support gold prices, the current spike in crude oil prices has shifted the focus towards inflation risks and dimmed expectations of the US Federal Reserve easing its monetary policy anytime soon.

 

Even if India witnesses some slowdown in gold jewellery demand, Ramaswamy said higher import duty will have a limited impact on investment demand for gold amid strong inflows to digital gold, exchange-traded funds, and electronic gold receipts.

 

Despite gold being costly, Indian investors poured $297 million to gold ETFs in April, the 11th consecutive month of inflows.

 

Amid worries about depleting foreign reserves, jewellers have been urging the government to revamp the gold monetisation scheme to integrate the estimated 25,000 tonnes of idle household gold holdings into the financial system.

 

However, Ramaswamy said the scheme can only meaningfully reduce India's reliance on imports if it can attract widespread public participation and the government resumes longer-term deposits. Under the scheme, households can deposit idle gold with banks after melting ornaments to pure gold and earn interest. The refined gold can be supplied to jewellers in the form of bars or coins, reducing fresh imports.

 

Ramaswamy, however, pointed out the challenge to pooling household gold. "Many households are emotionally attached to their jewellery and are generally reluctant to part with it," he said.

 

Moreover, the scheme now offers only short-term deposits of one-to-three year periods, instead of 12-15 years earlier. The government discontinued medium-term and long-term deposits under the scheme in March 2025 amid soaring gold prices and poor participation.

 

According to media reports, the scheme mobilised only a little over 31 tonnes in nine years starting from November 2015, equivalent to less than 5% of India's annual gold imports.

 

Ramaswamy is also optimistic about silver prices amid strong investment demand and industrial consumption. He said silver prices have established a strong floor around $72-$75 per ounce, and any correction towards those levels is likely to attract strong buying.

 

"In the short term, silver may trade between $75 and $80. In the long term, prices could move towards $90-$100 per ounce," he said.

 

Though the government restricted imports of most silver formats on Saturday, after imposing higher duty on the white metal earlier in the week, Ramaswamy said investment demand for silver through ETFs is unlikely to see any major slowdown.

 

On the broader commodity market, Ramaswamy said volatility across precious metals, crude oil, and base metals has significantly increased participation in commodity derivatives trading.

 

"Indian exchanges thrive on volatility," he said, adding that volatile commodity prices and a depreciating rupee have increased hedging demand from Indian corporates, particularly in precious metals and energy segments.

 

During FY26, the turnover of MCX surged over 135% to INR 164 trillion, mainly on the back of bullion futures. Meanwhile, the number of futures contracts traded in the year doubled to 3.22 billion.

 

Asked which commodities are likely to offer a better risk-to-reward ratio, Ramaswamy said silver seems the most promising. "I find a lot of benefit in silver if you were to look at the long positions that you build up in silver...Gold will continue to be a nominal, maybe a wealth preservation, asset class, maybe 12-15% range of returns on your portfolio allocations," he said.

 

On crude oil, Ramaswamy said prices are unlikely to return to pre-war levels of $65-$70 per barrel. He expects prices to correct to around $80 for West Texas Intermediate crude oil, and around $90 per barrel for Brent crude over the next six to nine months.

 

"The volatility drive is in silver on the upside, and crude on the downside. Base metals are likely to get corrected once the war premium will vanish away and enough supply is flushed into the markets," he said.  End

 

US$1 = INR 96.87

 

Edited by Avishek Dutta

 

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