Whalesbook
THE SEAMLESS LINK
The sharp decline in gold and silver prices observed around February 1, 2026, can be directly linked to the Union Budget's decision to retain current import duty structures for these precious metals. This outcome defied market expectations for duty reductions, leading to immediate downward price pressure across both commodities.
Market Reacts to Unchanged Import Duties
The Union Budget 2026 maintained the prevailing customs duty rates on gold and silver imports, effectively keeping the 6% levy for eligible Indian residents on gold unchanged. This total includes the 5% basic customs duty (BCD) and a 1% agriculture infrastructure and development cess (AIDC). Silver imports for eligible Indian residents also continue to face a 6% duty rate, with other importers subject to a higher 36% tariff. Both precious metals are also subject to a uniform 3% Goods and Services Tax (GST). This decision from the government contrasts sharply with the Centre's prior action on July 24, 2024, when it significantly reduced the customs duty on gold from 15% to 6%. Market observers noted that a broader tariff rate reduction announced for general personal use goods did not extend to gold and silver jewellery or other precious metals.
Price Corrections Accelerate
Following the Budget announcement, precious metals experienced significant price depreciations. Gold prices have fallen by approximately 20% from a recent peak of ₹1,82,500, settling around ₹1,47,800. Silver witnessed an even steeper decline, dropping 36% from its high of ₹4,20,000 to approximately ₹2,65,650. Jateen Trivedi, VP Research Analyst - Commodity and Currency at LKP Securities, indicated that the absence of any revision in bullion import duties within the Budget contributed to this negative price movement, exacerbated by prior weakness seen in CME futures. This price action suggests that market participants had factored in potential duty relief, and its non-materialization triggered a significant sell-off.
Sectoral Implications and Outlook
The continuity in import duties signals a policy preference for stability in precious metal taxation, potentially aimed at managing trade balances and foreign exchange reserves. Historically, changes in gold and silver import duties have been used by the government to influence consumer demand, curb smuggling, and manage inflation. The previous duty cut in July 2024 aimed to provide relief and boost domestic consumption. The current Budget's approach indicates a different strategic priority. Looking ahead, analysts suggest that the trajectory of gold and silver prices will be primarily influenced by global economic factors, geopolitical developments, and the Reserve Bank of India's monetary policy, rather than immediate fiscal adjustments on imports.