'India consumes 1,000 tonnes of gold a year, but...': Expert flags golden blind spot in risk management

Despite being the world’s largest consumer of gold, India has left itself dangerously exposed by failing to institutionalise gold price risk management, a strategic oversight that could cost the country trillions in wealth, says CA Aittreya R S, Founder and Chief Strategist of Bharat Gold Hedge Fund.

In an opinion piece on LinkedIn, titled The Price of Ignorance: How India Lost Revenue, Control, and Credibility by Avoiding Gold Risk Management, Aittreya talked a stark assessment of India’s vulnerability. “India has done something extraordinary—it has turned the world’s most stable asset into a systemic liability,” Aittreya asserted.

A golden liability

According to Aittreya, over Rs 165 lakh crore worth of household gold remains unprotected from price volatility. Meanwhile, more than Rs 10 lakh crore in gold loans lack institutional hedging, leaving lenders exposed to potential price crashes.

Jewellers, who lease hundreds of tonnes of gold for manufacturing, are similarly vulnerable. When gold prices spike, they face margin calls and liquidity crises, threatening supply chains and businesses. Even investors in gold ETFs remain at risk during every significant price correction, while the Reserve Bank of India (RBI) itself has experienced notional losses from unhedged sovereign gold bonds issued without price protection mechanisms.

The cost of ignorance

Aittreya’s warnings are stark: “A 30% crash in gold prices could wipe out over ₹60 lakh crore in household wealth. It could destabilize gold-backed lending portfolios, especially among NBFCs. Jewellers would face margin calls, choking liquidity and halting supply chains. Investors—already reluctant—would further retreat from formal gold channels.”

In contrast, India’s financial institutions routinely hedge exposure to other markets. Forex desks actively manage rupee-dollar volatility, interest-rate desks protect against repo-linked instruments, and commodity risk desks hedge oil, grain, and metal price swings. Yet, gold—the country’s largest imported commodity and cultural treasure—remains untouched by structured risk management.

An opportunity lost

Over the past 25 years, India could have built a robust financial ecosystem around gold risk management. According to Aittreya, such a system could have:

Generated Rs 1–2 lakh crore in annual fee-based income from gold risk services

Shielded jewellers and NBFCs from margin erosion during price spikes

Offered households downside protection on gold value

Helped monetize domestic gold reserves to curb imports

Positioned Indian banks as significant players in global commodity markets

“India needed to move from passive exposure to active protection—from fear of gold volatility to monetization of gold volatility,” Aittreya explains.

A simple solution

Aittreya proposed a clear, pragmatic solution: “The first step is to set up a Gold Price Risk Desk within a commercial bank—or within an International Banking Unit (IBU) at GIFT City.”

Such a desk would offer asset-backed protection instruments tailored for jewellers, NBFCs, ETF managers, and even households. For a fee of around 1% of the notional amount covered, stakeholders could insure themselves against price fluctuations.

Crucially, the system would rely on regulated, non-speculative tools—no derivatives, margin calls, or significant credit risks. Aittreya envisions this evolving into a Gold Digital Bank that could serve India’s entire gold ecosystem, ultimately transforming how the nation manages its wealth.

GIFT City's role

GIFT City, Gujarat’s ambitious international financial services hub, could be the catalyst India needs.

“If even one bank steps up to launch a Gold Risk Desk at GIFT City, India can offer institutional gold risk protection, establish itself as a price-making voice in the London Bullion Market Association (LBMA), and build an India Loco Spot for physical and price references,” Aittreya argues.

He believes this is not about gold worship but about gold governance—turning gold into a financial backbone capable of strengthening India’s economy, protecting its people’s wealth, and elevating its role in global trade.

India has already paid the price of inaction, Aittreya warns. The question now is whether the nation will seize the opportunity to protect its golden future.