Gold’s record 2025 rally boosts RBI reserves but weakens demand, deepens import reliance: SBI Research
According to the report, global gold prices have jumped more than 50% year-to-date in 2025, driven by persistent geopolitical tensions and a weakening US dollar. This price rally has lifted the value of India’s official gold reserves—now around 880 tonnes—by $27 billion in FY26, following a $25 billion gain in FY25.
- Nov 5, 2025,
- Updated Nov 5, 2025 3:27 PM IST
Gold’s spectacular rally—driving global prices close to the $4,000-per-ounce mark -- has left India grappling with a complex economic equation. A new report by SBI Research, titled “Coming of (a Turbulent) Age: The Great Global Gold Rush,” reveals that while the Reserve Bank of India’s (RBI) gold holdings have surged in value, domestic demand has weakened sharply, imports remain stubbornly high, and government liabilities under the Sovereign Gold Bond (SGB) scheme have ballooned.
Prices rise and lots more
According to the report, global gold prices have jumped more than 50% year-to-date in 2025, driven by persistent geopolitical tensions and a weakening US dollar. This price rally has lifted the value of India’s official gold reserves—now around 880 tonnes—by $27 billion in FY26, following a $25 billion gain in FY25.
However, consumer sentiment has faltered. India’s gold demand declined 16% year-on-year in Q3 2025, while jewellery sales plunged 31%, according to World Gold Council data cited in the report. Despite the slowdown, India remained the world’s second-largest gold consumer, with total demand of 802.8 tonnes in 2024, behind only China.
Imports continue to fill the domestic supply gap. Despite new reserves being discovered in Odisha, Madhya Pradesh, and Andhra Pradesh, import dependency stood at 86% in 2024. Gold imports were valued at $26.5 billion (₹2.2 lakh crore) in April–September 2025, marginally lower than $29 billion a year earlier.
Rising prices
SBI Research highlighted a strong 73% correlation between gold prices and the USD-INR exchange rate, meaning that each surge in global gold prices tends to weaken the rupee.
Meanwhile, the government’s Sovereign Gold Bond scheme, launched in 2015 to curb physical gold demand, has turned into a costly burden. With prices now at record highs, the redemption cost of SGBs has ballooned to ₹1.59 lakh crore, compared to an issue value of ₹65,885 crore, implying a capital loss of ₹93,284 crore—excluding interest payouts. The report attributes this entirely to the steep rise in gold prices.
Financialisation of gold gains momentum
While jewellery demand has softened, financial exposure to gold has surged. Assets under management in gold exchange-traded funds (ETFs) jumped 165% year-on-year, reaching ₹90,136 crore in September 2025. Inflows into gold ETFs have grown 2.6 times in FY26 versus FY25.
Similarly, gold-backed lending by banks has soared to ₹3.06 lakh crore by March 2025, largely concentrated in southern states such as Tamil Nadu and Karnataka. The RBI’s new Lending Against Gold Collateral Directions, 2025, have since capped loan-to-value ratios at 85% for small loans and 75% for larger loans to mitigate default risks.
Sentiment vs. strategy
The report also flags a distortion in India’s national accounting—classifying household gold purchases as “valuables” under Gross Capital Formation (GCF), which overstates investment without reflecting productive capital creation. An earlier RBI working paper (2011) had termed this classification “technically incorrect.”
In contrast, China has adopted a strategic approach—expanding its central bank’s gold reserves, easing import rules, and consolidating its position as a global gold trading hub through the Shanghai Gold Exchange.
SBI Research concludes that gold is undergoing a “structural transformation”, evolving from a passive store of value into an active financial asset. “While the world redefines gold as a strategic reserve instrument,” the report warns, “India continues to view it largely through a sentimental and ornamental lens.”
In essence, the rally that enriched India’s reserves has also exposed its vulnerabilities—dampening demand, swelling fiscal liabilities, and tightening the link between global gold markets and domestic financial stability.
Gold’s spectacular rally—driving global prices close to the $4,000-per-ounce mark -- has left India grappling with a complex economic equation. A new report by SBI Research, titled “Coming of (a Turbulent) Age: The Great Global Gold Rush,” reveals that while the Reserve Bank of India’s (RBI) gold holdings have surged in value, domestic demand has weakened sharply, imports remain stubbornly high, and government liabilities under the Sovereign Gold Bond (SGB) scheme have ballooned.
Prices rise and lots more
According to the report, global gold prices have jumped more than 50% year-to-date in 2025, driven by persistent geopolitical tensions and a weakening US dollar. This price rally has lifted the value of India’s official gold reserves—now around 880 tonnes—by $27 billion in FY26, following a $25 billion gain in FY25.
However, consumer sentiment has faltered. India’s gold demand declined 16% year-on-year in Q3 2025, while jewellery sales plunged 31%, according to World Gold Council data cited in the report. Despite the slowdown, India remained the world’s second-largest gold consumer, with total demand of 802.8 tonnes in 2024, behind only China.
Imports continue to fill the domestic supply gap. Despite new reserves being discovered in Odisha, Madhya Pradesh, and Andhra Pradesh, import dependency stood at 86% in 2024. Gold imports were valued at $26.5 billion (₹2.2 lakh crore) in April–September 2025, marginally lower than $29 billion a year earlier.
Rising prices
SBI Research highlighted a strong 73% correlation between gold prices and the USD-INR exchange rate, meaning that each surge in global gold prices tends to weaken the rupee.
Meanwhile, the government’s Sovereign Gold Bond scheme, launched in 2015 to curb physical gold demand, has turned into a costly burden. With prices now at record highs, the redemption cost of SGBs has ballooned to ₹1.59 lakh crore, compared to an issue value of ₹65,885 crore, implying a capital loss of ₹93,284 crore—excluding interest payouts. The report attributes this entirely to the steep rise in gold prices.
Financialisation of gold gains momentum
While jewellery demand has softened, financial exposure to gold has surged. Assets under management in gold exchange-traded funds (ETFs) jumped 165% year-on-year, reaching ₹90,136 crore in September 2025. Inflows into gold ETFs have grown 2.6 times in FY26 versus FY25.
Similarly, gold-backed lending by banks has soared to ₹3.06 lakh crore by March 2025, largely concentrated in southern states such as Tamil Nadu and Karnataka. The RBI’s new Lending Against Gold Collateral Directions, 2025, have since capped loan-to-value ratios at 85% for small loans and 75% for larger loans to mitigate default risks.
Sentiment vs. strategy
The report also flags a distortion in India’s national accounting—classifying household gold purchases as “valuables” under Gross Capital Formation (GCF), which overstates investment without reflecting productive capital creation. An earlier RBI working paper (2011) had termed this classification “technically incorrect.”
In contrast, China has adopted a strategic approach—expanding its central bank’s gold reserves, easing import rules, and consolidating its position as a global gold trading hub through the Shanghai Gold Exchange.
SBI Research concludes that gold is undergoing a “structural transformation”, evolving from a passive store of value into an active financial asset. “While the world redefines gold as a strategic reserve instrument,” the report warns, “India continues to view it largely through a sentimental and ornamental lens.”
In essence, the rally that enriched India’s reserves has also exposed its vulnerabilities—dampening demand, swelling fiscal liabilities, and tightening the link between global gold markets and domestic financial stability.