Pokhran Nuclear Tests

On May 11–13, 1998, India conducted five underground nuclear tests at Pokhran in Rajasthan — code-named Operation Shakti. The tests announced India's arrival as a declared nuclear power and triggered immediate international sanctions, led by the United States and joined by Japan, Canada, and other G8 nations.

The economic consequences were swift and painful. Foreign institutional investors pulled back from Indian equity markets. The Sensex fell sharply. The rupee came under pressure as capital outflows accelerated and foreign aid flows were curtailed.

Gold, somewhat paradoxically, declined in the period following the tests — partly because sanctions froze some international financial flows that would normally have supported gold imports, and partly because domestic economic uncertainty dampened speculative buying. India's gold import demand, already a major driver of the current account deficit, was suppressed as the government sought to conserve foreign exchange.

The sanctions were largely lifted after September 2001, when India's strategic importance shifted dramatically in US geopolitical calculations. The episode demonstrated that even India's foreign and defence policy decisions — not just economic ones — have measurable, immediate effects on commodity prices and exchange rates. The nuclear tests of 1998 remain a vivid illustration of how deeply intertwined India's geopolitical choices are with the daily prices Indians pay for gold.