Gold & Silver Crash: Prices Plunge Ahead of Union Budget 2026

Gold and Silver Prices Plunge Ahead of Budget 2026

Gold and silver prices witnessed a sharp correction ahead of the Union Budget 2026, as speculation mounted over potential changes to import duties. On Sunday, prices for both precious metals opened about 6% lower on the Multi Commodity Exchange (MCX), with losses later extending to nearly 9%. This domestic slump followed a severe overnight sell-off in international markets, leaving investors and traders on edge just hours before key policy announcements.

A Historic Two-Day Rout

The recent decline follows a historic rout on Friday, which saw some of the most dramatic price movements in decades. In the international spot market, silver plunged by as much as 37% intraday, marking its steepest drop on record. Gold fell 12%, its largest single-session decline since the early 1980s. This unprecedented volatility in global markets set the stage for a significant gap-down opening in India.

On the domestic front, MCX spot gold had already fallen by ₹10,842 on Friday to close at ₹1,64,389 per 10 grams, a 6.2% decline. Silver prices closed at ₹3,33,292 per kg, down ₹46,691, or 12.2%. Exchange-Traded Funds (ETFs) tracking gold and silver also reflected the sharp correction, with values falling between 7% and 14%.

The Budgetary Dilemma: Import Duties in Focus

The primary driver behind the market's anxiety is the uncertainty surrounding import duties. India is one of the world's largest consumers of gold and silver but has negligible domestic production, making it heavily reliant on imports. Consequently, customs duties play a critical role in determining domestic prices. Any revision in these taxes, typically announced in the Union Budget, directly impacts the landed cost of bullion and, subsequently, consumer prices.

Policymakers face a difficult choice. A duty cut could make gold and silver cheaper, supporting consumer demand and the jewellery export sector. However, a duty hike could help curb the rising import bill, protect the country's foreign exchange reserves, and support the rupee. This policy tension is amplifying market volatility.

Record Imports Raise Policy Concerns

The government's focus on import duties has intensified following a surge in precious metal imports in 2025. Despite record-high global prices, India's gold imports rose 1.6% year-on-year to $18.9 billion. Silver imports saw a much sharper increase, jumping 44% to $1.2 billion. Together, these imports accounted for nearly a tenth of India's foreign exchange expenditure in 2025, a figure that has drawn scrutiny from officials concerned about the widening trade deficit.

A History of Policy Adjustments

India's import duty structure for precious metals has seen several changes over the years. Duties were significantly cut in 2021 to curb smuggling, raised on silver in 2023 to align with gold, and then reduced again in 2024. The duty was held steady in the 2025 budget. Historical precedent, such as the sharp duty hikes in 2013 aimed at stabilizing the rupee, suggests that the government is willing to use tariffs as a tool to manage macroeconomic pressures. This history is fueling speculation that another hike could be under consideration.

Shifting Demand Dynamics

While high prices have dampened traditional jewellery demand, overall consumption has remained resilient due to a structural shift towards investment. Investment demand now constitutes over 40% of total gold consumption, a significant increase from previous years. This trend is supported by a massive 283% surge in inflows into gold ETFs in 2025. Investors have increasingly turned to gold and silver as a hedge against inflation and market uncertainty, which has kept import levels elevated.

Global Triggers and Market Outlook

While domestic policy speculation is a key factor, the sell-off was also triggered by global events. Reports of a potentially hawkish pick for the next U.S. Federal Reserve Chair strengthened the dollar, which typically puts downward pressure on dollar-denominated commodities like gold and silver. The crash was also exacerbated by aggressive profit-taking after both metals reached record highs earlier in the week.

Conclusion: A Market on High Alert

The sharp correction has left the market in a precarious position. Traders and jewellers are closely watching for any signals from the Finance Minister's budget speech. A potential duty cut from the current 6% to around 4% could provide some relief to domestic prices. Conversely, an unexpected duty hike could extend the recent pain for investors. As the Union Budget 2026 is unveiled, the direction of bullion prices will depend heavily on the fiscal policies announced.