Indian households own approximately $3.8 billion worth of gold, which is 88.8% of the country’s GDP, according to a Morgan Stanley research report.
In terms of volume, Indian households hold 34,600 tons of gold as of June, Morgan Stanley said in the report.
“This implies a positive wealth effect on the household balance sheet, given the uptrend in gold prices,” the American investment bank said.
A preference for financial assets by households has meant that investing in gold through ETFs (exchange-traded funds) has picked up recently, with ETF flows tracking at $1.8bn in the last 12 months.
Morgan Stanley said gold demand remained range-bound in India because of lower inflation and positive real rates.
The incremental household saving preference was shifting in favour of financial assets, it added.
We believe this trend will be sustained, given that policy makers are focused on maintaining macro stability.
The bank said the stock of gold holdings provide a positive wealth effect for the households balance sheet.
This is also benefitting from the lower interest payments because of monetary policy easing and the positive impact of tax cuts.
India’s gold market
India’s gold market is among the world’s largest, fueled by a unique combination of cultural ties, investment demand, and economic drivers.
Gold holds immense value for Indian households, serving as a reliable store of wealth, a safeguard against inflation, and a secure asset during uncertain times.
According to the World Gold Council’s estimates, India accounts for about 26% of the world’s global gold demand as of June 2025. China is the leading consumer.
In the last five years, demand for gold coins and bars have risen sharply in India to 32% in the quarter ending June 2025 from nearly 24% in the same period in 2020.
Jewellery demand, however, still comprises two-thirds of total gold consumption in India.
Morgan Stanley said the movement of the rupee has a significant implication on domestic gold prices.
Since the beginning of the year, the rupee has depreciated 3.8% against the dollar, further “amplifying domestic prices”.
A key structural driver has been the increasing relevance of gold as a reserve asset, encouraging central bank buying, amid persisting global uncertainty.
Over the last decade, central banks globally have nearly doubled their gold holdings. Notably, India has consistently expanded its gold reserves, increasing them from 8.1% in September 2023 to 14% by September 2025.
Diversification
Morgan Stanley said as the “financialisation and formalisation” of the economy is firmly getting established, diversification of household savings to market-linked products is gaining momentum among retail investors.
In the year ending March 2025, the proportion of deposits within household financial savings decreased to 35%, a moderation from 40% in the previous financial year and 46% pre-pandemic.
Conversely, equities reached a record high of 15.1% in the financial year 2025, an increase from 8.7% in the previous year and approximately 4% pre-pandemic.
Morgan Stanley strategist, Ridham Desai, anticipates a continuation of these trends, projecting an accelerated increase in equity’s share of household balance sheets.
This growth is expected due to several factors: favorable demographics, enhanced investor education, a historically low baseline of domestic equity ownership, the 2015 policy shift permitting retirement funds to invest in stocks, and a more robust regulatory landscape.
Ridham also expects the ratio of the value of equity to gold holdings to likely exceed one in the coming years from just 0.3 currently.
Gold not only acts as a hedge against inflation and currency depreciation, but is an effective portfolio diversification.
Investment through gold ETFs has increased amid tepid demand for jewellery due to high prices.
Steady gold consumption reflects macro stability
India’s strong macro-management framework, characterised by flexible inflation targeting, fiscal consolidation, and positive real rates, has fostered a stable macroeconomic environment, said Morgan Stanley.
India’s gold consumption benefits significantly from stable prices and external conditions, as this stability diminishes the need for precautionary demand.
The country’s gold consumption and imports have remained range-bound against a backdrop of sound macro-stability, the bank said.
Gold imports significantly contribute to India’s goods trade deficit, accounting for 6-7% of total imports. Since March 2022, gross gold imports have consistently stayed within 1-1.5% of GDP on a 12-month trailing basis.
“While net gold imports are indeed a significant contributor to the current account deficit, the steady trend in these imports ensures that the pressure on the current account balance remains contained,” the bank added.
In addition, notwithstanding the recent volatility in INR in CYTD25, the stability of the currency over the years has reduced speculative buying/importing of gold as a currency hedge.
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