Precious Metal Funds Rally as Government Raises Import Duty to 15%

Gold and silver exchange traded funds (ETFs) witnessed a sharp rally on Wednesday after the Government of India increased import duties on precious metals to 15% from the earlier 6%, triggering a strong surge in domestic bullion prices.

The move comes amid rising geopolitical tensions linked to the ongoing US-Iran conflict and mounting pressure on India’s foreign exchange reserves and currency stability.

The revised duty structure includes a 10% basic customs duty along with a 5% Agriculture Infrastructure and Development Cess (AIDC), taking the effective import tax on gold and silver imports to 15%.

The government’s objective behind the measure is to reduce precious metal imports, narrow the trade deficit, support the rupee, and conserve foreign exchange reserves during a period of global uncertainty.

Gold ETFs Rally Up to 7%

Following the announcement, investors rushed toward gold-focused exchange traded funds as expectations of higher domestic bullion prices strengthened.

Major gold ETFs from leading fund houses including:

• Nippon India Mutual Fund Gold BeES
• ICICI Prudential Mutual Fund Gold ETF
• Axis Mutual Fund Gold ETF
• Kotak Mahindra Mutual Fund Gold ETF
• HSBC Gold ETF
• DSP Mutual Fund Gold ETF
• Tata Asset Management Gold ETF

rose sharply in the range of 4% to 6.5% during intraday trading.

The strong gains reflected investor expectations that domestic gold prices may continue to remain elevated due to higher import costs and sustained safe-haven demand.

Silver ETFs Also See Strong Buying Interest

Silver-focused ETFs also recorded substantial gains as silver prices rallied sharply in domestic commodity markets.

Silver ETFs managed by:

• SBI Mutual Fund
• UTI Mutual Fund
• HDFC Mutual Fund
• Mirae Asset
• Edelweiss Mutual Fund
• Groww

advanced between 5% and 6% during the session.

Silver prices benefited not only from the import duty hike but also from rising industrial demand expectations and safe-haven buying amid global geopolitical concerns.

Gold and Silver Futures Surge on MCX

The sharp rally in ETFs mirrored the movement in domestic commodity futures markets.

Gold futures for June delivery on the Multi Commodity Exchange of India surged nearly 6% to around ₹1,62,621 per 10 grams.

Silver futures for July delivery climbed even more sharply, rising approximately 6.6% to around ₹2,97,499 per kilogram during morning trade.

The move highlights the immediate impact of the higher import duties on domestic bullion pricing.

Government Aims to Protect Rupee and Forex Reserves

The import duty increase comes at a time when the Indian rupee has weakened significantly against the US dollar, touching record low levels near ₹95.75 per dollar.

India remains one of the world’s largest importers of gold and silver, making precious metal imports a major contributor to the country’s trade deficit and foreign exchange outflows.

By increasing import duties, policymakers aim to discourage excessive non-essential gold purchases and reduce pressure on India’s current account balance.

The move also follows Prime Minister Narendra Modi urging citizens to avoid non-essential gold purchases for one year in view of ongoing global economic stress and geopolitical uncertainty.

Analysts Expect Temporary Demand Impact

Commodity analysts believe the higher duties may temporarily affect jewellery demand due to rising domestic prices.

However, experts largely remain constructive on the long-term outlook for gold and silver demand in India.

According to market experts, similar duty hikes in the past had only created short-term demand disruptions before buying activity gradually normalized.

Analysts suggest investors should avoid panic reactions and instead continue investing gradually through systematic accumulation strategies.

The broader expectation remains that precious metals will continue to attract strong investor interest due to inflation concerns, geopolitical risks, and currency volatility.

Jewellery Companies May Face Pressure

Brokerages believe the higher import duty structure could create near-term challenges for jewellery retailers and gold consumption-focused businesses.

Companies such as:

• Titan Company
• Kalyan Jewellers
• Sky Gold & Diamonds

could face pressure as elevated domestic gold prices may weaken discretionary consumer demand for jewellery, coins, and medallions.

Higher prices may especially affect demand from price-sensitive retail buyers in the near term.

Gold Financing Companies Seen Benefiting

On the positive side, analysts believe gold loan financing companies could benefit significantly from the rise in domestic gold prices.

Higher gold prices increase the collateral value of pledged jewellery, improving loan eligibility and asset quality for gold finance companies.

Market experts expect firms such as:

• Muthoot Finance
• Manappuram Finance

to benefit from stronger loan growth and improved collateral coverage amid rising bullion prices.

Long-Term Outlook for Precious Metals Remains Positive

Despite the near-term volatility caused by policy changes, analysts remain optimistic about the long-term outlook for gold and silver as strategic portfolio assets.

Persistent geopolitical tensions, currency weakness, inflation concerns, and global economic uncertainty are expected to continue supporting investor demand for precious metals.

India’s strong cultural affinity toward gold, rising financialization through ETFs, and growing retail participation are also likely to sustain long-term demand for precious metal investment products.