Gold demand has gone up despite price surge | Photo Credit: e-crow

Bullion, after energy, is the biggest contributor to India’s import bill. Bullion imports have traditionally declined when gold prices increased. Buyers cut back on grammage to meet their budgets. However, data from the World Gold Council (WGC) suggests that this long-held pattern is being disrupted. In January-March 2026, gold prices surged 81 per cent year-on-year, and yet domestic buyers actually increased their gold purchases by 10 per cent in volume terms and 88 per cent in the value terms ($25 billion against $13 billion).

Since India mines very little gold, this new trend in gold demand (its rising alongside price increase) can escalate the country’s import bill, skew the trade balance and trigger foreign exchange outflows. Unlike energy or electronics imports, which power economic activity, household savings invested in gold are stockpiled and locked out of the financial system. WGC data provides some insights into this change in behaviour. Historically, the bulk of India’s gold purchases has been from jewellery buyers looking to meet wedding commitments, or to use as collateral during distress. Lately though, investors have overtaken jewellery buyers as the main drivers of demand. Until 2024, over 70 per cent of gold demand, in volume terms, originated from jewellery buyers, with 30 per cent coming from bar and coin buyers. In 2025, demand from ETFs (exchange traded funds), bar/coin buyers picked up to 40 per cent of the total. In Q1 2026, purchases by investors in bars, coins and ETFs (exchange traded funds) at 54 per cent actually overtook jewellery buying as the main source of bullion demand. Jewellery buyers singed by the higher prices, cut back their volumes by 19 per cent, but bar/coin and ETF buyers upped their purchases by 34 per cent and 197 per cent respectively. Clearly, asset investors and consumers are acting in contrary ways. When prices spike, investors buy more. If investment demand continues to rise, India could face a secular surge in gold imports, irrespective of prices, widening the trade gap.

There are no easy policy fixes here. As households ramp up equity investments, they do need gold as a hedge against market volatility. Gold is also necessary insurance against geopolitical risks, a depreciating Rupee and debt returns that no longer match inflation. Rather than curb gold imports — which only pushes the activity underground — enabling remonetisation of the 30,000 tonne gold stockpile held by households presents a neat solution. Gold Monetisation Schemes which have failed in the past due to inadequate assaying infrastructure, need to be revived.

The Gem and Jewellery Council recently mooted a monetisation scheme where consumers deposit their physical gold with banks against electronic receipts, freeing up gold for re-use by jewellers. Remonetisation of gold and its re-use can be incentivised by exempting them from capital gains tax. In that case, demand from ETFs and jewellers can to an extent be met domestically, without recourse to imports.

Published on May 5, 2026