Gold finds itself squeezed between two powerful forces: an aggressive Indian import tariff hike that threatens to reroute physical demand through the black market, and stubbornly high US inflation that is recalibrating Federal Reserve expectations. The combination has left bullion nursing a monthly loss of roughly 3.5%, with spot prices hovering just above key technical levels.

India stunned markets by lifting effective import duties on gold and silver from 6% to 15%, effective May 13. The move follows Prime Minister Narendra Modi’s public appeal for citizens to forgo gold purchases for a year, underscoring New Delhi’s urgency to protect foreign exchange reserves. India’s gold imports had surged 24% in the fiscal year just ended, hitting a record $71.98 billion and weighing heavily on the trade balance.

But the tariff shock is already reshaping behaviour in unexpected ways. Indian investors, rather than retreating entirely, have pivoted toward gold exchange-traded funds. Domestic ETF inflows jumped 186% in the first quarter to 20 tonnes — an all-time high, according to the World Gold Council. This suggests that while official imports may slump, the appetite for gold exposure is being channelled through financial instruments rather than physical bars.

Across the Pacific, the US inflation picture continues to darken. April’s producer price index surged 1.4% month-on-month, the steepest monthly rise since March 2022, pushing the annual rate to 6.0%. The consumer price index followed suit, climbing to 3.8% — its highest since last May. The data has upended the rate-cut narrative. Traders now price a roughly 39–40% probability of a Fed rate hike before year-end, effectively extinguishing hopes for monetary easing in 2026.

Higher real rates are anathema for a non-yielding asset like gold. The pressure is evident in the world’s largest bullion ETF, the SPDR Gold Shares. Despite a trickle of inflows in recent days, the fund has haemorrhaged approximately $4.5 billion on a year-to-date basis, with holdings shrinking by 32 tonnes. Institutional money continues to head for the exits.

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Adding to the inflationary cocktail is the geopolitical factor. The blockade of the Strait of Hormuz since late February has driven Brent crude above $100 a barrel, feeding directly into the producer price data. So long as the waterway remains contested, energy costs will keep the Fed’s hawkish bias intact.

Gold itself is trading around $4,690–$4,707 an ounce, depending on the pricing venue, and sits fractionally below its 50-day moving average. The intraday trend lacks conviction — the metal is oscillating without a decisive breakout signal. Year-to-date, however, the underlying resilience is still on display: gold remains up roughly 8.4%, supported by strong physical demand.

The World Gold Council reported that total gold demand, including over-the-counter investment, reached a record 1,230.9 tonnes in the first quarter of 2026, up 2% from the prior year. That structural underpinning, driven by central bank buying and broader jewellery appetite, is the key counterweight to the macro headwinds.

Yet the Indian tariff shift carries a darker side effect. Industry players warn that the steep levy will revive smuggling, which had subsided after previous duty cuts. If a meaningful portion of official imports migrates to the grey market, the government’s fiscal and reserve goals may be partially undermined.

For now, the immediate catalyst for gold’s next directional move remains US inflation data and the evolving Fed narrative. Policymakers are in a bind: easing oil-driven supply pressure is beyond their control, and a rate hike — once unthinkable — is now being actively discussed. That dynamic, combined with India’s attempt to cap its own demand, leaves gold in a precarious position, despite the record physical backdrop.

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