Topic 3: BULLION: COSTLY PANDEMONIUM
February 2026 was one of the most turbulent months for
Indian bullion in recent memory, with the Union Budget 2026
acting as the immediate catalyst for extreme price swings.
The volatility was most visible on Budget Day, when both
gold and silver futures on MCX crashed sharply in intraday
trade before staging partial recoveries. While the broader
global backdrop contributed to the turbulence, the Budget’s
tax changes — particularly around Sovereign Gold Bonds
(SGBs) — triggered aggressive liquidation in leveraged
and “paper gold” positions, setting off a chain reaction
across bullion markets.
The key Budget announcement that unsettled the bullion
trade was the removal of capital gains tax exemption at
maturity for secondary-market buyers of Sovereign Gold
Bonds. Going forward, tax-free status would apply only to
original subscribers holding bonds until redemption. This
reduced the relative attractiveness of SGBs as a
tax-efficient alternative to physical gold and gold ETFs.
The move sparked profit booking in gold-linked financial
products and amplified selling pressure in futures, where
leveraged positions unwound rapidly.
On 1 February, MCX gold futures crashed over ₹10,000
per 10 grams and silver even more sharply amid record
pre-Budget highs, as policy surprises triggered a
technical selloff. Hopes for import duty reductions were
dashed, keeping gold and silver taxes unchanged, which
further hurt sentiment. However, this panic was brief. As
the month progressed, safe-haven demand and steadier
global markets supported a sharp recovery. By February’s
end, gold staged a V-shaped rebound, closing near
₹1,61,720 per 10 grams, with Delhi 24K gold up 0.6% for
the month, demonstrating buyers’ willingness to
accumulate on dips.
Silver, however, told a far more dramatic story. Spot
prices in India swung wildly, beginning near ₹3,50,000 per
kg on 1 February, collapsing to around ₹2,55,000 by 18
February, and then rebounding toward
₹2,85,000–3,00,000 per kg before consolidating into
month-end. The boom-bust-rebound pattern reflected
silver’s inherently higher beta nature. In corrections, silver
typically moves two to three times as much as gold, and
February followed that script precisely.
Silver’s sharper decline compared to gold in February
2026 was driven by several factors. Silver had seen an
outsized rally, with prices multiplying over the past two
years, resulting in stretched technicals and heavy
speculative positions fuelled by AI-related industrial
demand, supply concerns in China, and robust ETF
inflows. When global precious metals corrected amid a
stronger US dollar and expectations of prolonged high
interest rates, silver led the sell-off. The SGB tax change
impacted both gold and silver, but thinner liquidity and
high futures open interest in silver accelerated margin
calls and forced selling, amplifying volatility. Gold,
meanwhile, held up better due to consistent safe-haven
demand as geopolitical tensions and equity volatility
increased. By late February, both metals stabilised. Gold
entered mild profit-taking near monthly highs, while silver
consolidated around ₹2,80,000–2,85,000 per kg, with
uniform pricing across cities reflecting reduced panic and
cleaner positioning.
In summary, February 2026 was defined by a
Budget-triggered shock that exposed overstretched
positioning in bullion, particularly silver. Gold endured a
sharp early fall but recovered to post a small net monthly
gain, reinforcing its role as a resilient hedge. Silver, by
contrast, experienced a violent boom-bust-rebound cycle,
reflecting its higher beta and speculative character.
Together, the two metals illustrated how policy surprises,
technical positioning, and global macro forces can converge
to produce extreme but ultimately self-correcting volatility in
commodity markets.
