A significant surge in gold prices could provide a substantial boost to India's economic growth, with a 10% increase potentially adding up to 100 basis points to the country's Gross Domestic Product (GDP). This projection comes from Jefferies, which highlights the underappreciated wealth effect of gold on Indian households and its subsequent impact on consumption and lending.
India's Vast Gold Holdings Drive Wealth Effect
Indian households are estimated to collectively own an astounding 25,000 tonnes of gold, valued at approximately US$3.9 trillion as of March 2026. This vast reserve makes gold a critical component of household balance sheets. Over the past two years, the value of these holdings has swelled by about US$1.9 trillion due to rising gold prices. Consequently, gold's share of total household assets climbed from 15.4% in March 2023 to 24.2% in March 2026, while bank deposits saw a decline.
Gold-Backed Loans Fuel Consumption
The wealth generated by appreciating gold prices isn't merely theoretical; it's increasingly being monetized through gold-backed loans. What was once largely a dormant asset is now a dynamic source of credit. Organized gold-loan assets under management (AUM) witnessed a robust compound annual growth rate (CAGR) of 32%, expanding from US$86 billion in March 2023 to US$197 billion in March 2026.
Despite this growth, the lending opportunity remains significant. Gold loans currently represent only about 5.1% of the total household gold value. Jefferies estimates that even with a 50% loan-to-value ratio, only around 10% of household gold is monetized. A further 10% rise in gold prices could unlock an additional US$400 billion in household wealth and facilitate US$20-25 billion in new gold-backed loans. Combined, this could provide an 80-100 basis-point tailwind to both GDP and overall spending, particularly benefiting consumption among rural and lower-income households.
Macroeconomic Implications and Future Outlook
While the economic stimulus is considerable, it comes with a macroeconomic cost. Higher gold prices inevitably lead to an increase in India’s import bill, putting pressure on the current account. Gold imports, including jewellery, surged from US$36 billion in FY23 to US$79 billion in FY26, a 30% CAGR.
Looking ahead, Jefferies sees continued headroom for gold-backed lending. A projected US$15-20 billion annual increase in gold loans, driven by a higher monetization rate, could further contribute to economic activity. The increase in gold-loan AUM in FY26 alone corresponded to approximately 130 basis points of GDP, underscoring gold's growing role in India's economic landscape.