GOLD has been a symbol of security and safety for millennia. The yellow metal continues to allure investors worldwide despite the advent of the digital era. It is considered a safe haven in troubled times and prices move up during periods of global crises. No wonder gold prices have shot up by about 33% over the last year, from roughly $3,300 per ounce to over $4,400.
The high prices have not deterred investors as gold continues to be an essential element of any financial portfolio. This is despite the fact it can hardly be counted as a productive investment. It does not provide dividends, interest or rental incomes, unlike equities, bonds or real estate. The profit is made only when it is sold outright. Yet it is considered a “safe haven" asset as it retains value in times of uncertainty. Unlike bonds or equities, it remains highly liquid during a crisis.
The spate of conflicts over the last few years has thus contributed to the spike in gold prices. The war in Ukraine, the Gaza conflict and the US-Israel attack on Iran have all led to a renewed interest in the precious metal. Geopolitical tensions have been aggravated by the levy of a raft of protectionist tariffs by the US, prompting many central banks to raise their gold reserves.
China, for instance, was reported to be buying two to five tonnes of gold per month last year in a bid to reduce its dependence on accumulated dollar resources. It now has the sixth largest gold reserves in the world at 2,300 tonnes. This is still far below that of the US, which tops with 8,133 tonnes.
India, at the seventh position, has also been building up gold stocks. From 754 tonnes in 2021, these now touch 880 tonnes and account for about 17% of the country’s foreign exchange reserves. Like many other central banks, the Reserve Bank of India (RBI) has been seeking to mitigate geopolitical risks and reduce reliance on the dollar in turbulent times. The gold lying in government vaults around the world apparently accounts for one-fifth of the total mined metal in history, according to the World Gold Council.
In this context, it must be recalled that this country’s reserves came as a boon in 1991 when the economy faced a severe balance of payments crisis. In a bid to avoid an international debt default, the Chandra Shekhar government had then airlifted 67 tonnes of gold to the UK and Switzerland to serve as collateral for a $600-million loan. The amount was repaid within a year, but the government collapsed even more rapidly.
Despite the global appetite for the metal, there are varying views on its long-term returns in comparison to other asset classes like equities or real estate. Several comparisons of investments made in gold and US equity markets have shown that returns have been far higher in the latter. Yet gold has the advantage of easy liquidity in times of turmoil. Investment experts generally advise that gold should be a part of one’s personal financial portfolio.
Nowadays, it is possible to make investments without having to hold physical gold. Options like gold exchange-traded funds (ETFs) or digital gold are available. They are linked to the market price of gold and provide the same benefits as the physical commodity without the hassle of managing and storing the metal.
Indian buyers, however, continue to see the sparkle in physical gold despite skyrocketing prices. Latest Commerce Ministry data shows that imports rose by 82% during April compared to the same month last year.
The lure of gold jewellery is special as it is intricately woven into festival and wedding traditions while being considered integral to long-term security. A similar culture prevails in China. The World Gold Council estimates that jewellery is the largest source of worldwide demand, accounting for 50% of the global consumption.
The latest curbs on gold imports reflect the fact that the addiction for the metal could widen the current account deficit, which currently stands at about 1.3% of GDP. This deficit is created when the country’s outflows of currency exceed its inflows.
Gold is the second biggest import commodity after crude oil and accounts for 10-12% of the country’s merchandise imports. A 24% rise in imports was recorded in 2025-26. Import duty on bullion has been hiked from 7% to 15% while the Prime Minister has appealed to the people to postpone purchases. Integrated goods and services tax of 3% is also being levied on bullion.
The impact of these measures may not be significant, given the fact that similar ones have proved counter-productive in the past. Hiking duties has tended to push up smuggling rather than reduce demand. Buying gold is more of a cultural phenomenon in this country rather than a planned investment. It is an essential buy even for those in lower income brackets. High prices may reduce consumption, but not to a large extent.
It would thus be more effective to provide incentives for buying gold in the digital form or through exchange-traded funds. Recycling of old gold also needs to be made easier as this is another traditional system. The curbs on imports, including capping duty-free imports through the advance authorisation scheme, will likely only create difficulties for jewellers and gem exporters.
There are, therefore, limited options to contain gold imports. Some depletion of demand may occur owing to the high costs following the rupee depreciation and the bullishness in global markets. Yet urging austerity by delaying purchases may not be the best strategy, given that gold is linked to prosperity and abundance for even the poorest.
A better approach could be to suggest that the billionaires take a pause in flaunting their wealth at opulent events around the world. Austerity is good advice for the rich, but not for the masses.