India's vast gold reserves, traditionally held as a dormant asset, are increasingly being seen as a powerful engine for economic growth, particularly through the expansion of gold-backed loans. A recent report by Jefferies highlights that despite Indian households owning an estimated 25,000 tonnes of gold, valued at a staggering US$3.9 trillion, only about 15% of this wealth is currently monetized.
Untapped Wealth and Rising Monetization
The brokerage firm Jefferies points to significant headroom for growth in gold-backed lending. This sector has already seen rapid expansion, with gold loans now constituting approximately 7% of total bank and Non-Banking Financial Company (NBFC) credit. Before 2020, gold monetization through these formal channels was less than 4%, rising to around 5.1% by March 2026.
As of March 2026, gold loans were estimated at US$197 billion, representing a substantial 73% increase in US dollar terms over the preceding two years. Jefferies' report, titled India’s Hidden Stimulus: The Gold Wealth Effect, underscores how gold, long a static asset, is transforming into a dynamic source of capital amid a sustained upcycle in gold prices.
Potential for Further Lending and Consumption Boost
Despite the recent surge, the pace of gold-loan growth has not fully kept up with the rapid appreciation in gold prices. This disparity means that gold loans as a percentage of total gold holdings have actually decreased by about 80 basis points from March 2024 levels, indicating ample room for further lending.
Jefferies projects that a reversion to previous levels over the next two years could drive an additional US$15-20 billion, or 8-10 percentage points, annual rise in gold loans. This additional borrowing is expected to serve as a crucial transmission mechanism, translating rising gold prices directly into increased household spending.
"Unlike equities, Gold ownership is widespread across rural and lower-income households. As a result, the Gold wealth effect could offer a buffer amid deficient monsoons and provide tailwind to bottom-of-the-pyramid consumption," stated Jefferies in its report.
The impact is potentially broad-based, reaching segments of the population that may not benefit as directly from wealth effects in financial assets like equities. The increase in gold-loan assets during FY26 alone corresponded to approximately 130 basis points of GDP, suggesting a substantial contribution to economic activity.
Economic Implications and Considerations
Looking ahead, Jefferies estimates that a 10% increase in gold prices could generate an additional US$400 billion in household wealth, leading to a further US$20-25 billion in gold loans. This, in turn, could provide another 80-100 basis points of GDP or spending tailwind for the Indian economy.
However, the report also flags an important trade-off: higher gold prices invariably lead to an increased import bill for India. Gold imports, including jewellery, surged from US$36 billion in FY23 to US$79 billion in FY26, equivalent to about 2% of GDP. This creates notable pressure on the nation's current account balance, a factor that policymakers must consider as gold monetization continues to expand.