Final week, Prime Minister Narendra Modi requested 1.4 billion Indians to do one thing that, on the floor, sounds virtually affordable: cease shopping for gold for a yr.
Talking at a BJP rally in Hyderabad, he stated: “For a yr, be it any perform, we shouldn’t purchase gold jewellery.”
Skip the marriage jewellery. Skip the pageant cash. Give the nation a break.
Inside 72 hours, his authorities backed the enchantment with a coverage transfer that had (gold?) tooth…. climbing the gold import responsibility from 6% to fifteen%.
The rupee, in the meantime, hit a document low of 96.97 in opposition to the greenback on Could 20.
The request is rooted in a real financial emergency.
However in case you perceive India’s relationship with gold, you’d perceive why many Indians are more likely to preserve shopping for anyway, and why they is probably not improper to take action.
India and Gold: Extra Than Simply Jewellery
Gold is not only jewellery in India. It’s financial savings, insurance coverage, and inheritance multi function.
Households purchase it for weddings, Diwali (the Hindu pageant of lights), and Akshaya Tritiya (an auspicious Hindu day for purchasing gold).
Rural households use it as collateral for agricultural loans.
For generations with out dependable entry to banks or monetary markets, a gold bangle was probably the most reliable retailer of wealth out there.
Indian households have gathered an estimated 25,000 to twenty-eight,000 tonnes of gold over centuries, greater than the mixed sovereign reserves of the US, Germany, Italy, and France.
The metallic is woven into the economic system at each stage, from street-corner jewelers to temple vaults to the Reserve Financial institution of India’s (RBI) personal stability sheet.
Asking Indians to cease shopping for gold just isn’t a easy way of life request. It cuts in opposition to one of many deepest monetary instincts within the nation.
Why Modi Is Asking
The enchantment isn’t arbitrary. India is caught between two huge import payments it could possibly’t simply management, and gold is the one the federal government thinks it could possibly truly do one thing about.
Gold Is India’s Second-Greatest Import
India imports almost the entire gold it consumes. Each gram bought is successfully cash leaving the nation.
Gold imports hit a document $71.98 billion in FY26, up 24% year-on-year, making it the second-largest merchandise on India’s import invoice after oil.
The extended U.S.-Iran battle has pushed oil costs sharply increased. Since India imports most of its power, the larger oil invoice will increase demand for {dollars} and places downward strain on the rupee.
The Rupee Is Beneath Critical Strain
The mixed strain has widened India’s present account deficit to 1.3% of GDP in Q3 FY26.
Foreign exchange reserves have fallen by roughly $37.8 billion for the reason that battle started, from a document $728 billion in late February to round $690 billion by early Could.
USD/INR is down roughly 7-8% year-to-date, making the rupee Asia’s worst-performing main foreign money.
The Reserve Financial institution of India (RBI) is reportedly promoting round $1 billion per day to gradual the slide, and nonetheless dropping floor.
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The Value of India’s Gold Behavior
The GTRI assume tank, which backed Modi’s enchantment, put it plainly: “Rising bullion imports are hurting India’s overseas change reserves and commerce stability.”
Union Minister Ashwini Vaishnaw strengthened the message on the CII Annual Enterprise Summit, framing gold restraint as a matter of nationwide financial safety.
Even a 10% discount in gold imports might save roughly $7.2 billion in foreign exchange, significant when each greenback counts.
What’s Already Taking place
Modi’s feedback moved markets even earlier than any coverage was introduced. However the authorities’s subsequent transfer confirmed how critically it views the issue.
Jewellery Shares Took an Fast Hit
Markets responded instantly. On Could 11, jewellery shares cratered: Sky Gold fell 12%, Senco Gold dropped 10%, Kalyan Jewellers misplaced 8%, and Titan, India’s largest jeweler, slid 6-8%.
Jefferies drew an specific parallel to FY2012-13, when gold imports exceeded $50 billion and the federal government in the end imposed import restrictions that helped stabilize the rupee.
Jefferies sees the identical sample taking part in out once more.
The Obligation Hike Has a Loophole
The federal government is clearly not counting on goodwill alone. The responsibility hike to fifteen%, which reversed the July 2024 minimize, is a blunt instrument designed to scale back demand by worth somewhat than patriotism.
As one analyst informed Enterprise Normal, excessive duties traditionally don’t considerably cut back underlying demand in India. As an alternative, they primarily they primarily shift purchases to casual channels.
👍The Case for Listening to Modi
There are official causes to take Modi’s enchantment critically. Right here’s the strongest case for it.
It’s a Unhealthy Time to Purchase
Gold costs are at document highs. At over Rs. 1,56,000 per 10 grams domestically, that is arguably the worst time to be a brand new purchaser.
The responsibility hike makes it worse. You at the moment are paying roughly 9 proportion factors extra in tax than you had been three weeks in the past.
Your Buy Has a Nationwide Value
The nationwide affect is actual. India is the world’s second-largest gold importer.
When Indians purchase gold in giant quantities, India has to spend {dollars} to import it. That may put strain on the rupee and make imported necessities, from oil to meals, dearer for everybody.
So the issue is not only particular person alternative…what is sensible for one family can damage the nation when everybody does it abruptly.
Paper Alternate options Are Accessible
Higher options exist. Gold ETFs and gold mutual funds offer you financial publicity to gold costs with out triggering new bodily imports.
They’re cleaner, extra liquid, and for the reason that July 2024 finances adjustments, taxed on the identical 12.5% long-term capital beneficial properties fee as bodily gold.
It’s Just for One Yr
The federal government’s ask is for one yr, not ceaselessly. A short-term pause throughout a real balance-of-payments stress occasion is a distinct sort of request than structural reform.
👎The Case for Ignoring Him
Historical past just isn’t on the federal government’s facet right here. Indians have seen this film earlier than, and gold was the one which didn’t allow them to down.
The Rupee Has a Lengthy Observe File of Dropping
Each time an Indian authorities has requested its residents to belief paper over gold, the individuals who ignored that recommendation got here out forward.
The rupee has misplaced roughly 81% of its worth in opposition to the greenback since 1991.
Gold has roughly 6x’d in rupee phrases over the previous decade alone.
This chart above exhibits a gram of gold (XAU to INR) is at the moment buying and selling at round ₹14,000.
4 years in the past, it was beneath ₹4,000!
Demonetization Left a Scar
Demonetization in 2016 is the sharpest instance, when Modi voided 86% of India’s foreign money in a single day. Indians who rushed to transform money into gold had been vindicated.
The coverage, by the RBI’s personal later accounting, failed at its acknowledged purpose whereas efficiently educating a era that authorities guarantees about cash have limits.
That lesson has solely been strengthened since.
The federal government has quietly shut down each of its personal paper-gold options.
Sovereign Gold Bonds, as soon as pitched because the accountable trendy substitute for bodily gold, had been discontinued in early 2024 after gold costs rose so dramatically that the redemption legal responsibility turned a fiscal burden.
The Gold Monetization Scheme was partially wound down in 2025.
A authorities that voided its personal foreign money, then quietly shut down its personal gold options, is now asking residents to cease shopping for gold.
It’s not arduous to know why many will ignore the request.
Ought to Indians Cease Shopping for Gold?
Either side of this debate have advantage, and the appropriate reply depends upon whether or not you’re pondering like a policymaker or a family.
It Relies upon Who You’re Optimizing For
The trustworthy reply is: it relies upon on whether or not you’re optimizing for India or for your self, and historical past suggests these two issues are genuinely in pressure proper now.
For the nation, diminished gold imports would assist slender the deficit, ease strain on the rupee, and liberate overseas change for issues that truly generate financial output.
The logic is sound.
For the person Indian family, the case for gold hasn’t weakened.
A falling rupee, elevated inflation, discontinued paper options, and a authorities observe document of foreign money interventions all level towards the identical conclusion Indians have been drawing for many years: gold holds its worth when paper doesn’t.
Modi’s enchantment is well-intentioned, and the underlying macro stress is actual.
However asking Indian households to forgo gold is actually asking them to belief the rupee greater than they belief gold, a guess that the final 60 years of financial historical past doesn’t clearly help!
Which brings us to the rupee itself, and what all of this implies in case you’re buying and selling it.
What This Means for Foreign exchange Merchants
Whether or not or not Indians comply, the macro strain driving this story could be very a lot alive within the foreign money markets.
And if the rupee retains falling, the individuals who saved shopping for gold could have been proper once more.
USD/INR: One-Method Visitors
In line with analysists, USD/INR has turn out to be a one-way pattern.
The principle variable is crude oil: each $10/bbl on Brent provides roughly $14-15 billion to India’s annual import invoice.
Present Value Motion
USD/INR stays in a transparent day by day uptrend, with worth holding above the rising 50-day SMA at 94.1074 and the 200-day SMA at 90.6457.
The broader construction remains to be bullish so long as worth holds above the latest higher-low help space close to 94.00–94.10.
- Fast resistance is the latest excessive zone round 96.80–97.00, whereas the subsequent seen upside extension space sits close to 98.00.
- Deeper help is seen round 92.20–92.80, adopted by the main help zone round 90.65–91.00.
Current candles present robust upside momentum after consumers defended the pullback space close to 94.00–94.10 and pushed worth into recent highs close to 96.80–97.00.
The most recent candle exhibits some hesitation close to the excessive, so consumers now want a day by day shut above 97.00 to verify continuation.
Sellers would wish to drive worth again beneath 94.00 to counsel the breakout leg is dropping energy and {that a} deeper pullback towards 92.20–92.80 is opening.
The RBI Is Working Low on Ammunition
The RBI is preventing the slide however visibly dropping floor.
It additionally introduced a $5 billion swap public sale for Could 26, a instrument that places rupees into the system with out completely drawing down its overseas change reserves.
In different phrases, the central financial institution is making an attempt to handle the slide whereas holding one thing again for later.
Normal Chartered now expects RBI fee hikes of fifty foundation factors beginning June, which might present some short-term help.
Watch the June MPC Assembly
Watch the June 3-5 MPC assembly as the primary main inflection level for USD/INR course.
A fee hike would make rupee property extra enticing to carry, slowing the foreign money’s slide.
A separate however complementary transfer can be a authorities bond scheme to draw greenback deposits from Indians residing overseas.
It has achieved this earlier than, elevating $26 billion in 2013 by providing abroad Indians enticing charges to park {dollars} in Indian banks.
That sort of direct greenback influx might give the rupee a significant enhance.
A fee maintain with out new measures probably means one other leg decrease.
