Gold, Silver ETFs surge 7% after government raises import duties to 15%

Silver ETFs recorded exceptional gains during the session, with Quantum Gold Fund leading the surge, jumping nearly 15% to hit the day's high of ₹143.37 compared with the previous close of ₹124.90, according to ETMutualFunds. Tata Gold ETF rose 12%, while Zerodha Gold ETF gained around 9%, as reported by ETMutalFunds. Three gold-based ETFs climbed 8% each, while the remaining 19 posted gains in the 4%–7% range, as reported by ETMutalFunds. Silver-based ETFs jumped up to 10%, with HDFC Silver ETF and UTI Silver ETF gaining the most, with around five silver ETFs gaining up to 9% each, as reported by ETMutalFunds. By around 10:10 AM, gold ETFs such as Union Gold ETF, Axis Gold ETF, HSBC Gold ETF, Kotak Gold ETF, Tata Gold ETF, Nippon India ETF Gold BeES, Groww Gold ETF, ICICI Prudential Gold ETF, DSP Gold ETF, Bandhan Gold ETF, and Edelweiss Gold ETF surged in the range of 4 to 6.5%, as reported by Business Standard. Among silver ETFs, DSP Silver, SBI Silver, UTI Silver, Kotak Silver, HDFC Silver, ICICI Prudential Silver, Groww Silver, Axis Silver, Mirae Asset Silver, Nippon India Silver, Edelweiss Silver, and Tata Silver ETFs rose in the range of 5 to 6%, according to Business Standard.

The rally came after the central government raised customs duties on gold and silver imports, with the revised rates taking effect from midnight. The government has imposed a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess (AIDC) on gold and silver imports, taking the effective import tax to 15% from 6%, according to ETMutalFunds. Import duty on gold and silver has been raised from 6% to 15%, while platinum will now attract a duty of 15.4%, up from 6.4%, with the changes also applying to related items such as gold and silver dore, coins, and findings, as reported by The Financial Express. The decision is aimed at moderating non-essential imports at a time when geopolitical tensions are driving volatility in crude oil markets and disrupting international shipping routes, according to ANI citing Finance Ministry sources. As a major oil importer, India faces heightened risks of a widening Current Account Deficit (CAD) and inflationary pressure if foreign exchange outflows are not carefully managed, with the move aligning with broader economic discipline advocated by Prime Minister who has urged citizens to reduce avoidable foreign expenditure. The move revives memories of the 2013 crisis, when India's gold imports surged past $50 billion in each of FY12 and FY13, with volumes exceeding 1,000 tonnes, and the current account deficit peaked at around 6.8% in December 2012, as reported by The Economic Times.

The duty hike is expected to create significant challenges for the gems and jewellery industry, with the Gems and Jewellery Council (GJC) stating that business is now going to become difficult on the back of the Prime Minister's austerity measures and following the import duty hike in bullion, as reported by PTI. GJC chairman Rajesh Rokde warned that this will give rise to grey market activity and smuggling is likely to grow, setting up a parallel economy in the country, according to PTI. The rise in duty is expected to make raw material costlier for jewellers and bullion dealers, with market participants closely tracking whether demand slows in the coming weeks. Since gold accounts for nearly 9–10% of India's total import bill, the hike could provide some protection to foreign exchange reserves, as noted by Geojit Investments. The decision also aligns with Prime Minister Modi's recent urging citizens to avoid buying gold for a year to conserve foreign exchange reserves, as reported by The Financial Express. Jewelry stocks including Kalyan Jewellers, Thangamayil, and Sky Gold plunged as much as 7% following the announcement, as reported by The Economic Times. According to Singhania from Bajaj Broking, jewellery companies such as Titan Company, Kalyan Jewellers, and Sky Gold & Diamonds may face pressure as higher tariffs increase domestic gold prices and could weaken consumer demand, particularly for discretionary purchases like coins, medallions, jewellery, etc., as reported by Business Standard.

Market experts remain divided on the effectiveness of the policy measures, with Hareesh V Nair, head of commodity research at Geojit Investments, stating that on a temporary basis, we expect a mild decline in demand due to the duty hike, but on a broad basis, it is unlikely to impact the demand outlook over a longer period, as reported by Business Standard. "While there should definitely be a short-term impact, we expect demand to improve over time, similar to what we saw a few years ago when duty was at 15 per cent. Investors need not worry as prices are moving up and there is no sharp decline in sight. There is no need for panic selling; instead, they should continue to buy on a gradual and systematic basis. This environment is actually strengthening our market," Nair noted. Sumit Singhania, research head at Bajaj Broking, said the measure is aimed at curbing precious metal imports and reducing pressure on the country's foreign exchange reserves, as reported by Business Standard. On the positive side, he said, gold financing firms, including Muthoot Finance and Manappuram Finance, are likely to benefit from higher collateral values of gold loans, according to Business Standard. Notably, India is the world's second-largest consumer of gold and largest consumer of silver, relies heavily on imports to meet domestic demand. According to the World Gold Council, inflows into India's gold exchange-traded funds (ETFs) jumped 186 per cent year-on-year in the March quarter to a record 20 metric tonnes, as reported by Business Standard.