Custom hike duty impact gone from silver! 3 reasons why gold’s poor cousin is down by Rs 33,000

The carnage was a lot severe on Friday when prices plunged 6% or Rs 17,500, wiping out the entire rally triggered by the Centre’s decision to raise gold and silver import duties to 15% in a bid to arrest the rupee’s slide to record lows.

MCX data shows that before the customs duty hike was announced, silver futures had settled the May 12 session at around Rs 2.79 lakh per kilogram. Prices spiked on May 13 after the higher customs duty pushed up landed costs, briefly taking silver back above Rs 3 lakh per kg. But that bounce has completely reversed, with silver now erasing all post-hike gains.

What’s behind the decline?

A key reason behind the steep correction has been demand destruction at elevated price levels. Unlike gold, silver has a large industrial demand component, with usage spread across sectors such as solar panels, semiconductors, electric vehicles, batteries, electronics, AI infrastructure and green energy systems.

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“At the same time, geopolitical tensions linked to the Iran conflict initially triggered safe-haven buying across precious metals. However, markets later began to focus on the potential impact of prolonged elevated oil prices on global growth momentum. That concern tends to affect industrial metals more heavily than pure defensive assets, causing silver to increasingly trade like an industrial commodity rather than a traditional safe-haven hedge,” the analyst said.

India, which remains the world’s largest silver importer, could also see weaker domestic demand after the sharp increase in import duty. According to Nirpendra Yadav, Senior Commodity Analyst at Bonanza, the jump in duty to 15% materially raises local prices and may hurt jewellery demand while slowing industrial imports.

He added that if the Iran conflict keeps crude oil prices elevated for an extended period, central banks may maintain a hawkish stance due to inflation risks. Higher interest rates typically weigh on precious metals as non-yielding assets become less attractive relative to interest-bearing investments.

The initial surge in prices was largely a “duty shock” reaction, according to Ponmudi R, CEO of Enrich Money. Following the government’s move to raise import duty on silver from 6% to 15%, MCX silver prices spiked sharply as the cost of imported silver immediately increased.

However, the market soon recognised that while changes in import duty can temporarily distort domestic prices, they cannot fundamentally alter global silver market dynamics over the long term.

More pain on the cards?

From a technical perspective, the current chart structure is beginning to show signs of exhaustion after the recent vertical rally.

Silver futures witnessed a sharp blow-off move towards the Rs 2,95,000-3,00,000 zone before facing strong rejection at higher levels almost immediately. Such price action often signals exhaustion buying near peaks alongside the emergence of aggressive supply pressure. The market is now correcting towards the 50 EMA region, which is acting as immediate dynamic support.

Overall, silver appears to be entering a highly volatile phase in the near term, with profit booking, sharp price swings and consolidation likely after the recent rally. However, the medium-term outlook continues to find support from strong industrial demand trends and persistent supply tightness.

From a longer-term perspective, silver continues to remain one of the strongest structural commodity themes globally, supported by rising demand from AI infrastructure, the green energy transition, solar capacity expansion, electronics manufacturing and electric vehicle growth.

At the same time, Tata Mutual Fund said in a report earlier this month that the deteriorating global economic outlook could limit silver demand over the medium term. The fund house noted that slower solar installations and liquidation of large long positions have eased supply tightness in global markets.

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It added that silver remains a developing long-term growth story, but its broader trajectory will depend heavily on a sustained recovery in industrial demand. Given the commodity’s volatile nature, the report suggested a staggered investment approach for medium- to long-term investors.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)