With gold up over 60% in rupee terms this year, India’s vast private gold holdings are creating a powerful wealth effect on household balance sheets
Gold Prices Soar to All-Time Highs in 2025
Gold prices have skyrocketed in 2025, hitting $4,056 an ounce globally and ₹1,27,300 per 10 grams domestically. This marks a 54.6% surge in dollar terms and 61.8% in rupee terms so far this year.
- The rally has been driven by global macro uncertainty, geopolitical risks, and central bank accumulation.
- India remains the world’s second-largest gold consumer, accounting for 26% of global demand, just behind China at 28%.
Indians Own $3.8 Trillion in Gold — 88.8% of GDP
According to Morgan Stanley, Indian households now hold an estimated 34,600 tonnes of gold, valued at $3.8 trillion — equivalent to 88.8% of the country’s GDP.
- This immense gold stockpile is providing a positive wealth effect, boosting household net worth despite muted consumption growth.
- The surge in gold value acts as a balance sheet cushion, particularly important amid economic transition and policy reforms.
“Gold remains a critical buffer in household portfolios,” said Morgan Stanley, highlighting its role in wealth preservation.
Consumption Stable, But Value of Gold Demand Rises
While gold consumption volume remains flat at 767 tonnes (well below the 2011 peak of 1,145 tonnes), value-based consumption has surged to $68 billion on a four-quarter trailing basis as of June 2025, per World Gold Council data.
- The Reserve Bank of India (RBI) has also increased its gold holdings by 75 tonnes since 2024, bringing its total to 880 tonnes.
- Gold now accounts for roughly 14% of India’s total forex reserves, underlining its strategic importance.
Inflation, Interest Rates, and Import Trends
India’s macroeconomic environment has played a crucial role in keeping fresh gold demand contained, even amid price surges:
- Average inflation since 2016: ~5%
- Positive real interest rates: ~1.7% post-pandemic
- Gold imports: Now at 1–1.5% of GDP, down from 3.3% in 2013
These factors have helped maintain current account discipline, while preventing excessive household bias toward physical assets.
Financial Shift Still Intact
Despite high gold prices, Indian households have not shifted away from financial savings:
- Gold ETF inflows over the past year: $1.8 billion
- Household financial savings also rising amid tax reforms, lower interest costs, and growing disposable incomes
This indicates that gold is acting more as a stored wealth asset than an active investment channel.
Wealth Effect: A Hidden Force in the Economy
Morgan Stanley notes that the wealth generated from existing gold holdings is boosting consumer confidence, especially in rural and semi-urban regions where gold is more prevalent.
- This “wealth effect” supports household consumption, even without liquidating gold assets.
- It is also reinforcing macro stability, enabling the RBI to focus on growth-supportive policies.
With Indian households holding $3.8 trillion worth of gold, the recent price surge has created a significant wealth effect. While new demand remains stable, gold continues to play a critical role in the household balance sheet, acting as a buffer amid inflation, supporting sentiment, and reinforcing macroeconomic resilience.
