India’s legendary love affair with gold has reached an extraordinary milestone. With spot gold touching fresh all-time peaks above $4,500 per ounce in the international market, the country’s household gold reserves may have crossed the $5 trillion mark—making the glittering stash worth more than India’s entire gross domestic product (GDP).
A Morgan Stanley report last October estimated that Indian households own about 34,600 tonnes of gold. At last week’s record high of $4,550 per ounce, that translates to more than $5 trillion in household gold wealth. India’s GDP, by contrast, stands at around $4.1 trillion according to the International Monetary Fund.
The statistic is as much cultural commentary as economic fact, a testament to gold’s unshakeable grip on the Indian psyche even as the country races toward becoming the world’s third-largest economy.
“It is a striking statistic that invites deeper reflection rather than a literal comparison,” Dr. Manoranjan Sharma, Chief Economist at Infomerics Valuation and Ratings told ET Markets. “While GDP is a flow variable and gold holdings are a stock, the contrast nevertheless highlights the extraordinary cultural, financial, and psychological importance of gold in the Indian economy.”
Wealth effect?
Morgan Stanley had noted in an earlier report that “the stock of holdings of gold provide a positive wealth effect for the household balance sheet, which is also benefiting from cyclical factors of lower interest payments with monetary policy easing and a positive impact on disposable income through direct and indirect tax cuts.”However, not everyone agrees with this wealth effect thesis. Historical analysis of gold rallies by Emkay Global challenges the conventional wisdom. The firm analyzed three significant gold rallies over the last 15 years and found no material macro impact on consumption.
Emkay attributes this to behavioral traits: households treat gold as a combination of consumption and long-term savings, with 75-80% of gold holdings in jewelry. Holders rarely value their gold holdings, unlike financial assets, so a wealth effect does not come into play, according to Emkay economist Seshadri Sen.
India remains the world’s second-largest consumer of gold, accounting for about 26% of global demand, just behind China at 28%. According to the World Gold Council, India’s share has risen from a five-year average of 23% to 26% as of June 2025 on a four-quarter trailing basis.
While jewelry comprises the bulk of demand, roughly two-thirds, the share of bars and coins as retail investment instruments has surged over the past five years, climbing from 23.9% in June 2020 to 32% in June 2025.
The Reserve Bank of India (RBI) has also joined the gold rush. The central bank has added approximately 75 tonnes to its reserves since 2024, bringing total holdings to 880 tonnes, which now constitute about 14% of India’s total foreign exchange reserves, according to Morgan Stanley.
Dr Sharma traces gold’s allure to its historical role alongside the US dollar as a global safe-haven asset. “For nearly eight decades, since the emergence of the Bretton Woods financial architecture, gold and the US dollar have occupied a unique position as global safe-haven assets,” he explained. “In periods of heightened global or domestic uncertainty—wars, financial crises, inflationary episodes, or geopolitical stress—investors and households instinctively gravitate toward these two stores of value.”
Silver has recently re-entered this privileged category as well, reflecting “growing distrust in fiat currencies and financial systems, especially during episodes of aggressive monetary expansion by central banks,” Sharma noted.
Gold’s paradox
Yet gold presents a policy conundrum. “From a purely economic standpoint, gold is largely an idle and unproductive asset,” Sharma said. “It does not generate income, enhance productivity, or directly contribute to capital formation.”
Recognizing this, policymakers over the past two decades have repeatedly attempted to shift household savings toward financial alternatives such as gold ETFs, sovereign gold bonds, and digital gold. “However, these initiatives have met with limited success,” Sharma observed. “The deep-rooted preference for physical gold—driven by tradition, tangibility, and trust—has proven difficult to overcome. For many households, gold is not merely an investment but a form of security, insurance, and social currency, particularly in times of distress.”
Central banks fuel the rally
The record prices reflect more than just household demand. “Another major factor driving gold prices to record highs appears to be aggressive accumulation by central banks, particularly the People’s Bank of China,” Sharma said. “According to press reports, the Chinese central bank has been purchasing gold in large quantities, leveraging its substantial financial resources.”
This reflects a broader strategic shift. “Several countries to diversify reserves away from the US dollar, reduce exposure to geopolitical risk, and strengthen monetary sovereignty,” he explained. “Such large-scale, sustained official-sector demand exerts upward pressure on global gold prices, reinforcing its status as a strategic asset rather than merely a commodity.”
Macroeconomic implications
The scale of India’s gold holdings carries significant economic consequences. “Large imports of gold affect the current account deficit, influence exchange rates, and constrain monetary policy transmission,” Sharma noted. “At the same time, gold acts as a shadow financial system—providing liquidity through gold loans when formal credit access is limited.”
This dual role underscores the complexity of the issue. “Understanding this phenomenon requires moving beyond simplistic judgments and appreciating gold’s complex role as both a financial asset and a deeply embedded social institution,” Sharma said.
He concluded with a forward-looking question: “It remains to be seen how and to what extent we are able to ‘unlock’ the value of gold to drive the process of India’s economic growth and structural transformation in conformity with the avowed objectives of development.”
For now, as gold prices soar and household wealth balloons, India’s $5 trillion golden hoard stands as both an economic puzzle and a cultural icon—a glittering reminder that some traditions prove more durable than the most sophisticated financial engineering.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
