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Indians love gold. For many, it remains a safer and more dependable savings option than real estate, stocks, or bonds.

According to the World Gold Council, Chinese consumers purchased 857 tonnes of gold in 2024, while Indians bought 803 tonnes. Over the past 15 years, these two countries together have accounted for nearly half of the world’s consumer demand for gold.

As per Morgan Stanley, Indian households held about 34,600 tonnes of gold at the end of June this year — a stockpile valued at roughly $3.8 trillion, equivalent to 89% of India’s GDP.

This massive gold holding contributes positively to household balance sheets, creating a wealth effect. It is also being supported by cyclical factors such as lower interest payments amid a more accommodative monetary policy.

Tax reductions — both direct and indirect — have further boosted disposable incomes. While the average gold buyer may not consciously consider the economic implications of their purchase, they continue to buy gold as a hedge against future uncertainties.

A decade ago, RBI Governor Raghuram Rajan cautioned Indians about the pitfalls of their obsession with gold. His warning came at a time when household savings were being eroded by high inflation, prompting aggressive gold buying as a safeguard against rising prices.

Since then, India’s gold consumption has fallen by nearly 20% compared to levels about 15 years ago, according to WGC data. This decline is partly due to the RBI’s success in reducing headline inflation — from about 10% in 2012–13 to just 2.6% in the current fiscal year. Rajan’s concerns, it turns out, were not unfounded.

Meanwhile, Indian households are now diversifying their investments. The share of mutual funds and equity investments in gross financial savings doubled to 15.2% in 2024–25.

This shift was no accident. It came alongside a remarkable rally in the stock market. Data from the National Stock Exchange shows that investors put in ₹1.66 lakh crore into Indian equities on a net basis in 2024 — more than the ₹1.53 lakh crore invested in the previous ten years combined.

Government data further reveals that household savings in physical assets declined steadily in the years leading up to the COVID-19 pandemic — from 45.9% of gross savings in 2011–12 to 36.9% in 2020–21. It later rebounded to 43.8% in 2022–23, largely driven by purchases of homes and vehicles as people took advantage of low interest rates.

A similar trend can be seen in savings through gold and silver ornaments, which fell from 1.1% of gross savings in 2011–12 to 0.7% in 2020–21, marginally rising to 0.8% in 2022–23 and returning to 0.7% in 2023–24.

Since India imports all its gold, high import levels have a direct bearing on the country’s merchandise trade deficit. Exchanging old gold for new jewelry, however, helps reduce the need for imports.

A widening trade deficit means India must pay more in foreign currency than it earns from exports, thereby weakening the rupee and making imported goods and services more expensive. Gold plays a significant role in these trade dynamics.

Interestingly, the recent surge in gold prices has prompted many to sell their holdings. Prices have been pushed up by several factors — including global economic uncertainty, the U.S. tariff war, fears of slowing growth and inflation, rising geopolitical risks, and increased gold purchases by central banks.

Gold prices crossed the ₹1 lakh per 10 grams mark in April this year and are now moving toward ₹1.3 lakh, over 50% higher than last year.

The impact of soaring gold prices is already visible in India’s trade data — and more ripples are likely to follow.