The role of gold to our financial security

Gold plays a significant role in financial security by acting as a safe-haven asset, protecting against inflation, and diversifying an investment portfolio. Its value is not tied to the performance of any single company or government, giving it intrinsic value that can provide stability during periods of market volatility and economic uncertainty.

Gold plays a hugely important role in individual and household finances for many. It can bring the financial security needed to start a business, or help individuals meet unexpected costs such as healthcare expenses. Often seen as a long-term asset it can also help ensure financial freedom in retirement. But there are other benefits too, including financial system stability and expanding access to other banking products. Where consumers trust and understand gold, retail banks have an opportunity to offer gold-backed banking products to appeal to a larger range of consumers.

Indian households hold an estimated $3.8 trillion worth of gold, equivalent to about 88.8 per cent of the country’s GDP, according to Morgan Stanley. The brokerage said this vast store of wealth is providing a positive wealth effect to households, even as macroeconomic stability keeps the flow of new gold demand largely range bound.

Morgan Stanley noted that India remains the world’s second-largest consumer of gold, accounting for roughly 26 per cent of global demand, behind China’s 28 per cent. While household consumption continues to dominate, central bank purchases have also risen at the margin — the Reserve Bank of India (RBI) has added about 75 tonnes of gold since 2024, taking its total holdings to 880 tonnes, or around 14 per cent of India’s total foreign exchange reserves.

Morgan Stanley highlighted that a benign inflation trend—averaging 5 per cent year-on-year since the adoption of the flexible inflation targeting framework in 2016—and positive real interest rates (averaging 1.7 per cent since post-pandemic policy normalisation) have kept gold imports contained at 1–1.5 per cent of GDP, significantly lower than the 3.3 per cent of GDP seen in May 2013. This macro stability has helped prevent an excessive tilt toward physical assets, easing pressure on the current account deficit.

The report said gold acts as a critical buffer in the household balance sheet. By Morgan Stanley’s estimates, households own around 34,600 tonnes of gold, or $3.8 trillion in value, providing a significant cushion to household wealth amid rising prices. It added that household preference for financial assets remains intact, with gold ETF inflows amounting to $1.8 billion over the past 12 months.

According to Morgan Stanley, stable inflation and positive real rates have kept gold demand contained while encouraging a shift toward financial savings. However, the existing stock of gold continues to create a powerful wealth effect for Indian households, which is being further reinforced by lower interest payments, monetary easing, and higher disposable incomes following tax cuts.

Gold has proven itself over millennia as a trusted store of value, offering protection against economic instability, inflation, geopolitical risks, and currency devaluation. Whether through physical gold, ETFs, or mining stocks, investors continue to rely on gold as a haven in times of crisis. As long as the world faces uncertainties, gold will likely remain a timeless investment for those seeking to preserve and grow their wealth.