Indians’ gold (and silver) investment craze is weighing on the economy again

Indian households have, with the times, updated how they make their savings. The rise in stock market investments, by way of mutual funds, has sparked concerns among bankers about the future of deposit growth. In 2022-23, bank deposits made up 35% of households’ financial assets, while mutual fund and equity investments accounted for 7%. In 2024-25, the former had fallen to 33% while the latter more than doubled to 15%. What hasn’t changed, though, is the love for gold as an investment, although how the money gets channeled into the precious metal has differed from time to time. The commerce ministry said on Monday gold imports tripled from December to $12.07 billion in January. And one route to gold as an investment that not only illustrates the financialisation and formalisation of household savings but has also become an increasingly bigger driver of the import of the yellow metal: exchange-traded funds (ETFs). ETFs are, in essence, mutual funds that invest in gold. For households, it is better to invest in gold ETFs than physical gold: they don’t have to bother with verifying the purity of gold or ensuring its security and can buy it in small amounts; it is the fund that must buy the gold depending on the investments it gets. But what began as a trickle in March 2007 in India became a veritable wave in January. According to data from the World Gold Council, India’s gold ETFs bought a record 15.52 tonne of gold in January, almost equal to the demand seen in the previous three months combined. The record gold demand from domestic ETFs of the metal was due to January seeing, for the first time, Indians investing more in these funds than equity mutual funds as investors surfed the gold price wave. According to data from the Association of Mutual Funds in India (AMFI), net gold ETF inflows more than doubled from December 2025 to an all-time high of Rs 24,040 crore in January. At the same time, equity mutual fund investments fell 14% to Rs 24,029 crore. What is worth noting is that these gold ETF inflows accounted for 22% of all gold imports (Rs 1.1 lakh crore) in January. The figure was an even larger 52% for silver ETF inflows (Rs 9,463 crore) and silver imports (Rs 18,194 crore). According to analysts at Kotak Institutional Equities, the surge in gold ETF investments across the world possibly implies “massive speculation” in gold and silver. “…we are not sure if this is in lieu of the usual strong demand for physical gold or loss of confidence of a section of households in the modern monetary system, the foundation of modern economies. We assume it is the former, as the latter is too frightening to comprehend,” the analysts said in a note last week, adding that the purchase of financial and physical gold by households is “tantamount to exports of capital from the country”. More than a decade ago, Indian households had lost some confidence in formal saving instruments and had also turned to gold. High domestic inflation in the years following the global financial crisis of 2008, a rapidly weakening rupee, and stuttering growth had seen gold imports surge so much so that the Indian government and the Reserve Bank of India had to take measures to stop free import of the metal. Some other measures tried to lure Indians away from physical gold. One of these was the Sovereign Gold Bonds scheme, which was started in late 2015 and offered households exposure to gold prices along with an interest rate of 2.5%. According to RBI data, Indians bought SGBs equivalent to 147 tonnes of gold worth Rs 72,274 crore over the scheme’s life. This helped reduce India’s gold imports by that sum as the government did not import gold to meet these bond purchases but only set aside money for interest payments and change in price of gold. However, the SGB scheme was discontinued in early 2024 as rapidly rising gold prices made it an increasingly expensive proposition for the government: it was having to pay nearly Rs 18,000 crore every year as interest and payment for maturing bonds. While high inflation is not a concern now, the fear that some households could be after gold because of loss of confidence in the modern monetary system should not be completely ignored. The world has become rather volatile in recent years, marred by geopolitical conflicts and policy uncertainty. The advent of artificial intelligence has spurred stock markets of certain countries, while others – such as in India – have lagged due to their low AI exposure. The sharp increase in gold imports in January – driven by rising investments in gold ETFs – helped push up India’s goods trade deficit to nearly $35 billion. The last time it was higher was October’s record $42 billion, when even more gold was imported, although much of that may have been due to the Diwali effect. Maybe a new SGB scheme – and one for silver and other metals – is warranted. Siddharth Upasani is a Deputy Associate Editor with The Indian Express. He reports primarily on data and the economy, looking for trends and changes in the former which paint a picture of the latter. Before The Indian Express, he worked at Moneycontrol and financial newswire Informist (previously called Cogencis). Outside of work, sports, fantasy football, and graphic novels keep him busy. ... Read More