India is one of the world’s largest gold bar and coin markets. Investment demand for gold is driven by its safe-haven appeal and the ability to convert these products into jewellery at a later stage.

Over the last decade the government’s focus on ‘bank the unbanked’ has witnessed tremendous success. But the subsequent increased use of banking services and the heightened awareness of financial products have created headwinds that could weigh on future gold bar and coin demand. 
The government has also taken steps to mobilise the huge ~US$1.4tn private stock of gold in India, most recently with the launch of the Revamped Gold Monetisation Scheme (R-GMS).1  The gold loan market has flourished with a total of 2,950-3,350t being used as collateral.2

Now, spot gold exchanges need to develop gold-backed financial products to provide impetus to the financialisation of gold in India.

Executive summary

The need to mobilise India’s gold

Indian households hold an enormous amount of gold – an estimated tonnage of up to 25,000.3 It is no surprise, therefore, that the government is keen to get some of this gold into the economy. Mobilising it would cut the need for imported bullion and have a direct positive effect on the country’s account deficit. But there are hurdles. 

Demographic shifts and financial inclusion

India is the second largest bar and coin market globally. Gold is highly valued, used as a means of household investment as well as an adornment for weddings, festivals and more. In a country where access to banking facilities has been limited – especially across large swathes of rural India – gold has historically been the investment of choice. But change is afoot. India’s population is young and attitudes are shifting. This generation saves less than their parents; is technology savvy; spends more on luxury goods and holidays. And the government’s drive towards financial inclusion is bringing banking facilities and wider investment opportunities to a far larger audience than ever before. 

All this could present headwinds for gold, yet it retains a special place in the hearts of the Indian population. It is much more than a precious metal. It is has deep cultural significance, it is what will make beautiful wedding jewellery, it is a safe haven in times of distress, and it is a hedge against inflation.  

Gold-backed financial products

When the first gold ETF was launched in 2007 it was a notable success. However, the rising equity market proved too much of a temptation and demand was soon dented. Not until the pandemic caused economic alarm did the ETF market recover and by the end of 2022 gold ETF holdings stood at 38t.4 Since then, ongoing geo-political tensions have reinforced the need for safe-haven assets and the digital gold investment market has responded. Now, 16 companies offer digital gold products in India with an estimated 5-6m active gold accounts.5 Gold savings funds and multi-asset funds offer another route into gold-backed ETFs and sovereign gold bonds (government securities) allow investors access into gold with a bonus interest payment at term end. These gold-backed financial products, and others, are expected to continue their rapid development. 

Monetising gold in practice

In contrast, the government’s Gold Monetisation Scheme (GMS) was less than popular in its original iteration as it failed to fully understand the way in which Indian households held gold. Changes to the scheme have made it somewhat more accessible. The current version allows gold deposits to be held over five or seven years with interest paid in rupees at the end of the term. But only six per cent of households are aware of the scheme and there are no incentives for banks to become involved in its operation.6 The government has introduced policies to improve the country’s gold-related infrastructure – including the establishment of domestic gold spot exchanges and plans for an India International Bullion Exchange – which are intended to make meaningful progress towards monetising India’s stock of gold. 

Historically, the loan against jewellery market has been strong but unorganised, and despite fulfilling the need to liquidate gold, such loans have traditionally carried  high interest rates. While the majority of the market remains unorganised, over the past three years the number of organised lenders has increased from 35% to 40% (at the end of 2022) and the amount of loans arranged through banks has surged three-fold from pre-pandemic levels.7 And with less paperwork and realistic interest rates they look set to rise further. Including the agricultural sector, the loan against jewellery market is now valued at between 2,950 and 3,350t. 

GMS and the future

Government policies, the pandemic, cheap internet access and smartphone ownership have all been significant contributors to the expansion of financial offerings in India. Gold-backed financial products offer investors good liquidity while serving to drive financial inclusion. But the key to making economic use of household gold doubtless lies in GMS. If meaningful amounts of gold are to be put back into India’s economy much more will need to be done to stimulate interest and encourage participation in the scheme.


India has a long-standing and strong affinity towards gold that stems from its culture and local traditions. Gold fulfils a twin motive: adornment and investment. Historically, the popularity and growth of gold as an investment has been due to two main factors: the country’s high savings rate and a lack of banking access across much of rural India. Indians have a high propensity to save, underlined by the fact that, since independence, the gross savings rate as a share of GDP has risen from 13% in 1975 to a noteworthy 30% in 2021.8 But the low penetration of banking services and a lack of awareness about other financial products, such as equities, has led to a large proportion of investment flowing into physical assets such as gold. 

A report by Jefferies highlights this low penetration of equities and related products: it suggests that Assets Under Management (AUM) in Indian equity mutual funds stand at just 12% of GDP; much lower than the global average of 63%.9 Even though the number of demat accounts in India have grown sharply, touching 108mn in 2022, the share of household savings invested in equities (0.3% of GDP) and mutual funds (1.1% of GDP) remains low.10 In the absence of gold-backed financial products, investment in gold has historically been limited to physical products – jewellery and bars and coins.

Metals Focus’ discussions with the trade suggest that some investors prefer jewellery over bars and coins as the former serves both as an adornment and as an investment. Over the last few years gold investment products have seen their share of overall consumer demand fall, from 35% in 2013 to 22% in 2022. A brief recovery in 2020 (to 29%) appears to be a one-off, which owed more to the steep fall in jewellery sales – particularly wedding purchases – during lockdown. From a longer-term perspective, declining demand for gold investment products is indicative of greater financial inclusion, increased awareness of other financial products on offer and changing demographics. 


1Estimated value based on average 2022 LBMA Gold PM Fix price. the R-GMS was launched in April 2021.

2Metals Focus

3Metals Focus


5Metals Focus

6India Gold Policy Centre Annual Report 2021-22

7Metals Focus

8World Bank


10RBI ; average of data for Q1-Q3 FY 2020-2021.

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