Gold hits lifetime high in 2025, gold loans soar 128%: Should borrowers opt for gold loans in emergencies?

Gold has long been viewed as a trusted hedge by Indian households, prized not only for its cultural significance but also for its ability to preserve wealth during periods of uncertainty. That role has come sharply back into focus as gold and silver surged to fresh lifetime highs, extending a historic rally driven by escalating geopolitical tensions and a weaker US dollar. Both metals rose for the fifth straight session on Friday, as investors rushed into safe-haven assets amid risks linked to the US blockade of Venezuelan crude oil shipments.

The sharp rise in prices is also reshaping household borrowing behaviour. Gold loans have emerged as one of the fastest-growing segments of retail credit, with loans against gold jewellery rising 128.5% year-on-year to Rs 3.38 lakh crore in October 2025, according to Reserve Bank of India (RBI) data. The surge reflects how households are increasingly leveraging gold as a financial asset rather than selling it outright during times of need.

Should you sell gold or take a gold loan during an emergency?

Dev Patel, Quantitative Research Analyst at 1 Finance, breaks it down for investors:

Before we look at the math, we have to admit that gold isn't just an investment for Indian families. It’s usually passed down through generations or a gift from a wedding or birth. Because of this emotional connection, deciding to part with it is tough. However, financially speaking, selling jewellery is often a losing deal. You immediately lose up to 25% of the value (making charges plus GST), and if you ever want to buy that jewellery back later, you have to pay those costs all over again. It ends up being a double expense.

Taking a loan is often the better financial move. Under the new RBI rules announced in June 2025 (effective April 2026), you can borrow different amounts based on your need: up to 85% of the gold’s value for loans under Rs 2.5 lakh, 80% for loans between Rs 2.5 lakh to Rs 5 lakh, and 75% for loans over Rs 5 lakh. While you will pay interest between 8% and 12.5%, this cost is fair because of instant disbursal, and the lender bears the storage and security risk, as they take on the responsibility and cost of keeping your gold safe.

Expert advice

However, before you rush to the bank or the jeweller, pause and look at your other options. A good financial advisor will tell you to first check if you can get a "soft loan" from your employer, borrow from family, or take a loan against your insurance or fixed deposits. These options might be cheaper and less stressful. If you do choose a gold loan, make sure you only borrow what you strictly need and have a clear plan to pay it back so you don't risk losing your family heirlooms.

Things borrowers should note

From a tax perspective, selling gold attracts capital gains tax. If physical gold or gold ETFs are sold within three years of purchase, the gains are treated as short-term capital gains and taxed at the individual’s applicable income tax slab rate. If held for more than three years, the gains qualify as long-term capital gains (LTCG) and are taxed at 20% with indexation benefits. In contrast, long-term capital gains on Sovereign Gold Bonds at maturity are fully tax-exempt for individuals.

Gold loans, however, do not trigger any tax liability, as ownership of the gold remains with the borrower. This makes gold loans an attractive option for meeting short-term funding needs while retaining long-term exposure to gold prices.

Interest rates on gold loans in India vary widely by lender type and loan size. Public sector banks typically offer the lowest rates, ranging from about 8.05% to 9.15% per annum, with processing fees between 0.20% and 1% plus GST, and loan amounts usually capped at around ₹50 lakh. Private banks charge slightly higher rates of roughly 8.75% to 10.60%, levy processing fees of 0.25% to 2% plus GST, and can extend loans up to ₹1.5 crore. NBFCs offer greater accessibility and flexibility, but at significantly higher interest rates, ranging from 9% to as high as 27%, with processing fees of up to 2% plus GST.

Gold, silver rally

So far in 2025, gold has gained about 70%, while silver has jumped more than 150%, putting both metals on track for their strongest annual performances since 1979. Silver has clearly outperformed, far eclipsing equities and most other asset classes. International silver prices are up around 158% year-to-date, compared with a nearly 72% rise in gold. The rally has been mirrored in India, where domestic futures have repeatedly hit record levels.