Representative image of gold jewellery.
Credit: iStock Photo
New Delhi: As gold prices soar to new heights, a study on Wednesday made a case for a comprehensive policy for the yellow metal as India is one of the world's largest bullion markets, influenced by a cultural affinity for the shiny metal and investment demand.
Gold price has been reaching new heights driven by geo-political tensions, economic uncertainty, and a weakening US dollar, said the report titled 'Coming Of (A Turbulent) Age: The Great Global Gold Rush' by the State Bank of India's Economic Research Department.
The year-to-date price has increased by over 50 per cent in 2025. The price came down to below USD 4,000 per ounce for a few days in October, but again moved above USD 4,000/oz in November.
The report noted that the domestic supply of gold is only a fraction of the total gold supply in India, with imports contributing around 86 per cent of the total supply in 2024 as per the World Gold Council estimate.
India is one of the largest gold markets, influenced by cultural affinity for shiny metal, investment demand and other economic factors, including a hedge against inflation and a safe-haven asset, it noted.
Total consumer demand for gold in India increased to 802.8 tonnes in 2024, which was 26 per cent of the global gold demand, placing India at second rank, next to China with a consumer demand of 815.4 tonnes.
"Cherished by households, cheered by investors, hoarded by central banks and feted by speculators, the recent chequered journey of the shiny metal has been straight out of a story book, but also cautions as a fear gauge of the tempest waiting on the sidelines. Time for India to have a dedicated long-term gold policy that supports localisation," the report said.
It said the gold price has a direct impact on the USD INR exchange rate too, owing to the country's huge dependence on gold imports. The two are highly correlated, around 0.73, implying that higher gold prices are associated with Indian rupee depreciation, though the average import quantum makes it not a too significant factor.
SBI study said China has a national policy on gold, which has a specific purpose. It has a comprehensive approach to reshaping how gold is traded, stored, valued, and used in international commerce. It represents a coordinated approach to addressing several economic and geopolitical priorities simultaneously.
On India's gold policy till now, it said, "if one were to take an objective view of the policy discussions on gold since 1978, one finds that the major thrust has been to wean away the masses from physical gold. They were therefore only short-term in horizon".
"The time has now come to conceive a comprehensive policy on gold, and for such it is important that one defines what gold is (commodity or money) and how gold is perceived by its ultimate consumer," the report said.
The present trends in respect of gold policy prominently include demand-reducing measures and recycling of existing gold stock for productive purposes, it said.
However, since gold constitutes a source of funds with no corresponding application in capital formation, monetisation of gold will impact future investments in a positive way.
There is also a need to have greater debate on evolving a comprehensive policy on gold, say a gold-backed pension scheme, that will integrate with broader financial sector reforms and with currency convertibility on capital account, it added.
According to the report, policy tools as Sovereign Gold Bonds (SGBs) aimed to provide an alternative to holding physical gold and reduce its imports, have led to an increase in government debt. Capital loss alone for the outstanding SGB units accounts for Rs 93,284 crore.
Further, increased returns of gold as an asset class have led to huge inflows in gold ETFs. In FY25 (Apr-Sep), inflows in gold ETF jumped 2.7 times, and in FY26, it increased 2.6 times. The net asset under management of Gold ETF increased to Rs 901.36 billion as on Sep'25, representing a 165 per cent rise year-on-year (yoy).
"Gold is actively being considered for enhanced asset allocation now (10-20 per cent of portfolio as against about 5 per cent earlier)...The stoic pitch by asset allocators and fund managers globally can continue anchoring 'higher highs' for the gold prices, dancing to the whims and fancies of investors and speculators that may keep it detached from the 'intrinsic value' long cherished by connoisseurs and prospectors alike," the report said.
The report noted that countries such as the US and Germany hold more than 77 per cent of their total reserves in the form of gold. RBI held 15.2 per cent of its reserves in gold in FY26 (till October 10) compared to 13.8 per cent in FY25 and 9.1 per cent in FY24.
In terms of reserve change, RBI's gold reserves have increased by USD 25 billion in FY25 and USD 27 billion in FY26 so far till October 10, 2025, mainly due to valuation increase.
In terms of quantity, the Reserve Bank added only 0.6 tonnes of gold in FY26 (Apr-Sep) compared to 31.5 tonnes in FY25 (Apr-Sep).
"However, there has been a great emphasis on storage localisation, a prudent move indeed, going by the fractured lines of policy upheavals globally," the report said.
Domestic supply of gold is only a fraction of the total gold supply in India, with imports contributing around 86 per cent of the total supply in 2024, as per the World Gold Council estimate.
Mining of gold in India is limited, thereby increasing its reliance on imports. Gold mined during FY25 was 1,627 kg.
The study said that the recent discoveries of new gold mines in various districts of Odisha, Jabalpur in Madhya Pradesh and Kurnool district in Andhra Pradesh could help ease the pressure on imports and are positive for the country's current account balance.