The Country That Can't Stop Buying Gold

Gold became 8% of India's merchandise imports. Then the government asked 1.4 billion Indians to stop buying it.

In May 2026, India's Prime Minister made an unusual request of his countrymen. Narendra Modi asked Indians to refrain from buying gold for a year. Two days later, the government gave the request considerably more force by raising the import duty on gold from 6% to 15%, the largest single increase on record and a complete reversal of the tariff reduction introduced less than two years earlier. Other measures tightened the channels through which bullion and jewellery could enter the country.

The reason was not difficult to find. India was trying to conserve foreign currency at a time of geopolitical uncertainty and pressure on the rupee, which had depreciated by more than 7% since the beginning of the year. Gold had become one of the country's five largest imports and, in 2025, accounted for an extraordinary 8% of all Indian merchandise imports.

India was not importing machinery to build factories, fuel to run its economy or semiconductors for its technology industry. A meaningful part of one of the world's largest import bills was being generated by millions of people who simply wanted to own gold.

That is where this story becomes much more interesting than another discussion about the price of a precious metal. Why does a modern economy with sophisticated banks, enormous stock exchanges, mutual funds, digital payments and a rapidly growing middle class continue to import gold on such a scale that its government occasionally has to persuade citizens to buy less of it?

The answer begins not in Mumbai's financial district or at the Reserve Bank of India, but in the Indian home.

A national reserve hidden in millions of homes

Nobody knows precisely how much gold Indian households possess. Frequently cited estimates run to roughly 25,000 tonnes, although figures of this kind need to be treated with caution because much of the metal has accumulated privately over generations and has never passed through anything resembling a national inventory. What is beyond dispute is that Indian families collectively possess one of the world's great private concentrations of gold.

Open a jewellery box in an Indian family home and its contents may have surprisingly little in common with a jewellery collection assembled simply for fashion. There may be bangles inherited from a grandmother, a necklace bought for a wedding twenty years ago, coins acquired during Diwali or Akshaya Tritiya, earrings given when a child was born and perhaps a small investment bar bought after a particularly successful year. The collection may have been assembled by several people over several generations.

This is one reason conventional Western distinctions between consumption, savings and investment do not describe Indian gold particularly well. Jewellery has an obvious decorative and ceremonial purpose, but it can simultaneously represent family capital. Gold given to women also intersects with the longstanding concept of stridhan, property belonging to a woman that traditionally includes gifts received around marriage and other important stages of life. Weddings remain enormously important to the gold market, as do religious festivals and regional traditions.

The result is a form of household saving in which wealth can be worn at a wedding, returned to a cupboard afterwards, inherited decades later and, when necessary, converted into liquidity without necessarily being sold.

The jewellery that becomes a bank account

India's gold-loan market demonstrates this last point particularly well. When a household needs cash, gold jewellery can be taken to a bank or specialist lender, valued and pledged as security for a loan. Once the debt is repaid, the jewellery returns to its owner. Gold accumulated perhaps twenty years earlier can therefore finance a business, education, medical expenses or an unexpected household requirement while remaining, ultimately, family property.

This is not a marginal financial practice. By the end of February 2026, outstanding retail loans backed by gold jewellery at Indian banks had reached approximately ₹4.3 trillion, or US$47 billion, an increase of 124% in a single year. By the end of May, outstanding gold loans had risen to around ₹5.1 trillion at banks, with another ₹3.3 trillion at non-bank financial companies. The World Gold Council described gold loans as India's second-largest retail lending segment after housing.

Even more revealing is what Indians have done as the gold price has risen. Ordinarily, an 80% year-on-year increase in the domestic price might be expected to bring enormous quantities of old jewellery onto the market as households realise their gains. Recycling did increase, but remained surprisingly subdued. Many owners preferred to borrow against their gold rather than sell it.

Economically, that behaviour says something important about how the asset is perceived. The household wants access to the value contained in the gold, but it does not necessarily want to relinquish ownership of the gold itself.

From wedding jewellery to investment bars

There is another change taking place inside the Indian market, and it challenges the idea that India's appetite for gold is simply an old cultural tradition that will fade as the country becomes wealthier and more financially sophisticated.

In the first quarter of 2026, Indians bought 66 tonnes of gold jewellery. During the same three months they bought 62 tonnes of bars and coins. Bar-and-coin purchases increased 34% from the previous year and reached their highest first-quarter level since 2013. Gold ETFs added another 20 tonnes of investment demand, a quarterly record.

For a market historically dominated by jewellery, the numbers are remarkable. Indians were buying almost as much physical gold specifically as an investment as they were buying jewellery, while financial gold investment was growing alongside it. In the first half of 2026, bar-and-coin demand reached 113 tonnes, the strongest first half in thirteen years.

High prices have changed what people buy rather than simply persuading them not to buy. Mass-market jewellery customers have moved toward lighter pieces, lower carats and jewellery containing stones; others have shifted toward bars and coins, which generally carry lower premiums than jewellery. Exchanges of old jewellery for new pieces have become increasingly important.

This is why the familiar explanation that Indians buy gold because of weddings and tradition is no longer sufficient. A wedding necklace is partly cultural consumption. A 10-gram bullion bar is much harder to explain that way.

The buyer wants the metal.

When household saving becomes a national problem

At the level of one household, accumulating ten grams of gold is economically insignificant. Across hundreds of millions of households, the same preference produces an entirely different result.

India does not mine remotely enough gold to satisfy domestic demand. The difference must largely come from abroad, which means dollars or other foreign currency leave the country to acquire a metal that, in many cases, eventually disappears into private hands. By 2025, gold accounted for 8% of India's merchandise imports, making the population's preference for the metal significant enough to influence national trade and foreign-exchange policy.

This creates an unusual conflict between two perfectly understandable perspectives. An individual household may regard gold as a prudent reserve: portable, globally recognised, highly liquid and independent of the fortunes of a particular company or borrower. The government sees the aggregated consequence. When hundreds of tonnes have to be imported every year, household wealth preservation contributes to pressure on the trade balance and demand for foreign currency.

The events of May 2026 brought those two perspectives directly into collision. With the rupee under pressure, the government tightened several routes for gold imports, delayed or restricted elements of bullion-import arrangements, and increased the import duty from 6% to 15%. Modi's appeal to Indians to avoid buying gold for a year was therefore part of a broader effort to conserve foreign exchange rather than an isolated comment about personal investment choices.

The remarkable part is that a cultural and financial habit practiced inside ordinary homes had become important enough to require intervention from the country's highest political level.

Can a government persuade India to stop buying gold?

The measures had an effect. Demand weakened during the second quarter, particularly after the May intervention, while bullion imports fell sufficiently for total gold supply to reach a six-year low. Jewellery purchases were also affected by extraordinarily high domestic prices, which remained around 59% above the previous year's level.

Yet Indians still bought 131 tonnes of gold during the quarter. Because prices had risen so dramatically, the value spent on gold reached a second-quarter record of ₹1.979 trillion, approximately US$21 billion, despite the decline in tonnage. Investment demand remained above its long-term quarterly average, and first-half purchases of bars and coins were the highest in thirteen years.

There is an uncomfortable historical problem with making official gold imports considerably more expensive as well. The desire for gold does not necessarily disappear when a tariff increases. If the difference between international prices and official domestic prices becomes sufficiently large, unofficial supply becomes more attractive. India has considerable historical experience with gold smuggling, and the possibility of higher duties reviving the grey market is one reason gold taxation has repeatedly presented policymakers with difficult trade-offs.

This is perhaps the most revealing part of the 2026 episode. The Indian government can influence the cost and channels through which gold enters the country, and high prices can certainly reduce the quantity families can afford. What is much harder to alter is the underlying preference that created the demand in the first place.

Why hasn't modern finance replaced it?

It would be easy to tell this story as a conflict between an old India that buys gold and a new India that buys financial assets. The evidence does not support such a simple division.

Modern India has an enormous and increasingly sophisticated investment culture. Mutual funds and systematic investment plans have expanded dramatically, retail participation in equities has increased, electronic payments are ubiquitous, and Indian investors can access gold through ETFs and other financial products as well as through traditional jewellers.

Gold has survived this development rather than being displaced by it because it performs a different function. Equities offer participation in productive companies and the possibility of long-term economic growth. Bonds and deposits generate income and provide different degrees of certainty and liquidity. Property provides utility and can produce rental income. None of those advantages disappears because somebody owns gold.

Gold, conversely, pays no interest and produces no dividend. Its appeal rests elsewhere. Physical gold is an asset rather than somebody else's obligation. It can be recognised across borders, sold in small quantities, pledged as collateral and held for decades without requiring the continued existence of the institution from which it was originally purchased.

For an Indian family that has accumulated it across generations, this distinction is not theoretical. A grandmother's bangles may have survived changes of government, inflation, economic reforms and enormous changes to India's banking and financial systems while remaining recognisably the same asset.

That does not make gold a substitute for a diversified investment portfolio. It explains why financial modernisation has not automatically eliminated the desire to own it.

The next Indian gold cupboard may be a vault

There is nevertheless an inefficiency in the traditional model. If the objective is wealth accumulation rather than decoration, jewellery is an expensive way to buy gold. Craftsmanship, design and retail margins are perfectly justified when someone wants a beautiful object, but unnecessary when the objective is simply to add another five or ten grams to family savings. Keeping valuable jewellery or bullion at home also creates obvious questions of security, insurance, purity and eventual resale.

This suggests that the next evolution of Indian gold ownership may not require persuading families to abandon physical gold at all. Instead, technology could separate the decision to own gold from the decision to wear gold.

A modern owner could accumulate investment bullion gradually, perhaps by the gram, while the corresponding physical metal is held in professional custody. The useful number on the screen would not merely be a rupee portfolio valuation but the quantity of metal actually owned: 18.4 grams, 57.2 grams, 213.8 grams. Where law and regulation permit, an international version of the model could allow customers to own allocated investment gold, store it securely, accumulate it by the gram and take physical delivery where legally available.

For Indian residents, any such international structure would of course have to operate within Indian foreign-exchange, tax, reporting, customs and investment rules. It cannot sensibly be presented as a method of avoiding India's import duty; physical delivery into India remains a different regulatory event from owning metal stored abroad.

What is interesting is the underlying concept. Financial technology has spent the last two decades digitising shares, payments, loans and currencies. There is no obvious reason why the experience of owning physical bullion should remain stuck in the world of paper invoices, jewellery boxes and occasional trips to a dealer.

The asset can remain ancient while the infrastructure around it becomes modern.

India's gold paradox

The scale of India's relationship with gold is easiest to understand by returning to that 8%.

A single number connects the jewellery box in an Indian home with decisions made in New Delhi. Millions of individually modest purchases became one of the five largest categories of imports into a major world economy. In 2026, concern over foreign-exchange reserves and the rupee became serious enough for the government to raise the import tariff by nine percentage points and for the Prime Minister himself to ask citizens to refrain from buying gold for a year.

And yet the same period produced India's strongest first-half bar-and-coin investment demand in thirteen years. Households facing record gold prices often chose to pledge existing jewellery rather than sell it, while the country's enormous gold-loan industry continued to expand.

That is why India's gold market cannot be explained simply by investment returns, religious tradition or distrust of banks. All of those explanations capture pieces of it, but none captures the whole.

For the Indian government, gold can be a foreign-exchange problem. For economists, it can represent capital sitting outside more productive investments. For a jeweller, it is merchandise. For a bank, it can be collateral. For an investor, it is an asset. For a bride, it may be part of a wedding. For a family, the same gold may pass through several of those roles during its lifetime.

That versatility is probably the real reason attempts to reduce India's appetite for gold have proved so difficult. Governments can change duties, markets can change prices and technology can change the way ownership is recorded and stored. But none of those things automatically changes what millions of families believe gold is for.

In India, gold has never been merely something people buy when they think its price will rise. It is one of the ways families have learned to carry wealth through time.

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