$5 trillion gold lying with Indian households: Kotak explains macro downside of Midas touch

The value of gold holdings with Indian households has surged to an estimated $5 trillion, equivalent to about 125% of GDP, rising sharply in recent months on the back of a strong rally in gold prices. In contrast, the growth in household gold wealth was far more gradual over the previous decade. Gold now accounts for a significant share of household assets, making up nearly 65% of non-property wealth in India, a report by Kotak Institutional Equities stated.

While this should, in theory, bring multiple benefits to the economy. These include an increase in household wealth, an improvement in consumer sentiment and the potential for higher spending. However, this so-called ‘Midas’ effect also carries several downsides that remain largely overlooked by the market. The term, derived from the Greek myth of King Midas, who had the power to turn everything he touched into gold, is used to describe a “golden touch” or a consistent ability to achieve success.

Kotak Institutional Equities flagged several underappreciated risks from rising household gold purchases. It noted that buying gold effectively shifts savings away from financial assets such as bank deposits into physical assets, which is akin to an outflow of household capital.


With other external sector variables unchanged, this dynamic can lead to a drawdown in the Reserve Bank of India’s foreign exchange reserves, reflected in a decline in its net foreign currency assets. In turn, this limits reserve money creation and tightens system liquidity, potentially weighing on deposit growth unless offset by durable liquidity injections from the central bank.

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The brokerage also highlighted the scale of the trend, noting that net imports of gold and precious stones at around $500 billion far exceed net FPI flows into debt and equity of about $200 billion, and are nearly on par with combined FPI and FDI inflows of roughly $600 billion over FY2011 to 10MFY26.

The brokerage assumes a modest positive spillover from the rise in household gold wealth to domestic consumption, even though historically there has been little correlation between gold prices and consumption trends. It highlighted that gold holdings in India are widely distributed across households, with a disproportionately higher share held by low-income groups.

Given this distribution, any change in gold prices is unlikely to significantly alter consumption patterns. Low-income households, in particular, may lack the financial security to meaningfully adjust their spending or savings behaviour.

Gold’s unique position in Indian households as a store of value, a repository of wealth, including unaccounted assets, and as jewellery significantly limits its use as a productive asset. In practice, loans against gold remain the primary way to monetise these holdings.

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However, gold loans still account for only a small share of overall lending by banks and NBFCs, as well as within retail loan portfolios, despite a sharp rise in gold loan AUM in recent years. The note also expressed scepticism over the government’s ability to roll out any meaningful amnesty scheme to recycle household gold and curb imports.

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