Believe it or not, India has never beaten Australia in the final of an ICC tournament, whether the ODI or T20 World Cup, World Test Championship or Champions Trophy. For much of Jerome Powell’s tenure as US Federal Reserve Chair, gold faced a similarly daunting opponent. Higher inflation almost invariably led to higher interest rates, stronger bond yields and a firmer US dollar, creating persistent headwinds for the yellow metal. Under the so-called “Powell doctrine”, inflation data routinely triggered expectations of tighter monetary policy, pushing gold prices lower.
Fed Pause Revives Gold’s Momentum
Ironically, although the US Federal Reserve has left interest rates unchanged at all five FOMC meetings in 2026, the backdrop has changed dramatically. While Jerome Powell spent the first four months of the year resisting pressure from the US administration to cut rates, his successor Kevin Warsh, who took over on 22 May, is facing calls to raise rates amid inflation risks from the prolonged US-Iran conflict, oil prices repeatedly topping $100 per barrel, and uncertainty over US tariffs. The Fed’s decision on 28-29 July to hold rates steady gave gold fresh momentum, allowing prices to push above $4,100 per ounce instead of merely defending support around $4,000.
Gold’s biggest challenge in recent months has been the unusual impact of the US-Israel conflict with Iran. Normally, war boosts gold’s safe-haven appeal, sending gold and silver prices higher through a “war premium” that gradually fades as tensions ease. This conflict has unfolded differently. Escalation has repeatedly driven crude oil prices higher, fuelling inflation concerns, strengthening the US dollar and raising expectations of higher interest rates, all of which have weighed on gold. Ironically, announcements of ceasefires or easing hostilities have often supported prices. Earlier this week, renewed claims that the war had ended briefly lifted gold above $4,100 per ounce, before fresh drone activity near the Suez Canal pushed prices back below that level.
US bond yields are also approaching levels last seen before the 2008 global financial crisis. Thirty-year Treasury yields have hovered around 5.1%-5.2%, driven by persistent inflation concerns, energy shocks and heavy government borrowing. While bond yields and gold prices typically move in opposite directions, history shows that financial crises can reinforce gold’s safe-haven appeal. Following the 2008 crisis, gold climbed to a then record $1,926 per ounce in October 2011, raising the question of whether today’s elevated bond yields are signalling renewed stress in global financial markets.
Gold faces headwinds in the form of uncertainty over US tariffs, war & peace in the war over Iran, prospects of high interest rates, high crude oil prices, inflation fears, strong USD, booming stock markets, crypto currencies and no geopolitical tensions.
Despite these headwinds, gold’s long-term outlook remains constructive. Support continues to come from the US national debt, now approaching $39.7 trillion, sustained central bank purchases despite Russia’s sale of 44 tonnes in the first half of 2026, and an additional $8 billion in gold ETF inflows led by Asian investors. Ongoing geopolitical tensions, including the wars in Ukraine and the Middle East, along with the risk of slower global growth or corrections in equity, cryptocurrency or currency markets, continue to reinforce gold’s role as a safe-haven asset.
The World Gold Council’s (WGC) Gold Demand Trends Q2 2026 report highlighted that although gold prices eased from their record highs, domestic prices remained 59% higher year-on-year, supported by the mid-May import duty hike and a weaker rupee. The WGC expects demand to remain price-sensitive through the second half of 2026, with weddings, festivals and investment purchases providing support, although elevated prices and a weak monsoon could weigh on consumption. Total Indian gold demand fell 6% year-on-year to 131 tonnes in Q2, while spending rose 50% to $21 billion. Jewellery demand improved 14% sequentially to 75 tonnes but remained 15% lower than a year earlier. Investment demand eased to 54 tonnes from the exceptionally strong levels of recent quarters but remained above the long-term average. Gold supplies fell to a six-year low due to lower bullion imports, with recycling and existing inventories helping meet demand.
For the first half of 2026, India’s gold jewellery demand fell 17.1% to 141.2 tonnes, although its value rose 29.3% to $22.9 billion due to higher prices. Demand for bars and coins increased 21.3% to 112.3 tonnes, with value surging more than 90% to $18.3 billion. Gold ETF demand also strengthened sharply, with inflows rising 162.7% by volume and over 330% by value to $3.9 billion. Overall gold demand edged up 1.8% to 281.5 tonnes, while its value jumped nearly 60% to $45.8 billion despite the import duty hike introduced in mid-May. The average LBMA PM gold price during the period rose 52.8% year-on-year to $4,690 per ounce.
India’s gold imports rose more than 39% year-on-year to around 196 tonnes in Q1 2026 despite prices touching a record $5,600 per ounce, reflecting strong investment demand and investors’ willingness to hold gold even at all-time highs. However, imports fell nearly 23% year-on-year to 98.1 tonnes in Q2, suggesting the higher import duty introduced in mid-May had begun to curb official inflows. Even so, overall imports in the first half of 2026 remained elevated.
Unintended Consequences
India raised import duties on gold, silver and other precious metals to curb dollar outflows and ease pressure on the current account deficit. While the move contributed to lower official gold imports in Q2 2026, it also appears to have fuelled smuggling. The World Gold Council noted that wider price differentials have created lucrative arbitrage opportunities for grey-market operators, hurting the organised trade. After falling from 156.1 tonnes in 2023 to 69.2 tonnes in 2024 and 20.4 tonnes in 2025, gold smuggling is now projected to rebound to around 100 tonnes in 2026. If that happens, the higher duties may inadvertently strengthen the parallel economy and hawala networks, raising questions about whether the policy’s unintended consequences could outweigh its intended benefits.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or editorial position of Solitaire International or the Gem & Jewellery Export Promotion Council (GJEPC). This article is intended for informational purposes only and should not be construed as investment, financial or trading advice.