Gold paradox: Indians sell more but buy more too; a big question is lost in between

If ever you visit Bengaluru, you will be greeted with huge advertisements adorning the sides of almost every local public transport bus. The advertisement features a man, wearing heavy gold jewellery, proclaiming “We Buy Gold”. Almost every major Indian gold company is in the business of buying gold.

And the curious phenomenon of Indians selling/pawning gold seems to be sweeping the country. According to the Indian Bullion and Jewellers Association, nearly 50 tonnes of old gold have been off-loaded in the April-June quarter in a steep increase from last year.

What does the sale of gold reflect?

Many factors are at play for the unprecedented sale of gold. The steep rise in price of gold, fluctuation in prices, the fear that prices will fall, the younger generation treating gold as just any other asset on which profits can be booked are all factors which have prompted the unprecedented sale of gold. This is apart from loans against gold—the RBI has watched with growing concern the sharp increase in the cumulative bank credit to over Rs 4 lakh crore against gold jewellery in 2026.

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However, it must be noted that the large number of pawn shops which dot India, more so in rural India, exist to meet the financial challenges of the community; sale or pawning of gold, in all these cases, reflects economic distress. Without getting into the debate of GDP growth at 7.8 per cent or 2.6 per cent, does the current spurt in the sale of gold reflect economic challenges that are prompting the monetizing of the asset? Is India’s growth not as uniform as is thought to be? It should not be forgotten that sustaining this momentum requires job creation.

Has gold lost its sheen?

So, while the pace of employment and employment elasticity has grown, India’s unemployment rate was around 5 per cent in August 2026, according to the Periodic Labour Force Survey (PLFS). And even this does not fully capture the extent of unemployment due to disguised employment in agriculture and prevalence of casual, irregular work. Unemployment rate remains disproportionately high among individuals with higher education and in the agriculture sector. No good analysis of the cohort which is selling/pawning gold has been done and needs to be done; otherwise we will only have glib explanations.

Does the large-scale sale of gold mean that Indians are losing their desire for gold, or to use the cliché, gold has lost its sheen? The World Gold Council has estimated that investment demand and jewellery demand touched more than 140 tonnes during the January-March quarter of 2026. Licit imports continue at the same high levels. In 2025-26, gold imports touched nearly USD 72 billion, second only to crude oil. And as Uday Kotak has pointed out, if, and that is a big IF, one excludes gold, then India has a trade surplus.

Indians and their love for gold

Gold is typically a Veblen good—demand increases during the wedding season and festivals despite a steep increase in prices. Nothing deters us; for, social customs, though reducing, still demand that gold jewellery be given as part of a marriage dowry. Which is why the World Gold Council has pegged the annual demand for gold in India at about 710 tonnes. While one can dispute the quantum, the fact remains that there is huge demand. Our mines produce around 1.5 tonnes of gold. And since licit imports and mine production cannot meet this demand, gold is smuggled too. So the appetite for gold has not reduced.

Also read: RBI denies selling $12 billion worth of gold; reserves steady at 880 tonne

Indian policymakers have grappled with very many measures to control the flow of gold. In the very early years, when smugglers Dawood Ibrahim and Haji Mastan flourished, gold import was prohibited. After 1991, slowly but surely, imports were permitted on payment of duty which went from 10 per cent to 6 per cent in 2024. The present customs duty is 15 per cent. And since there is always a difference in the price of gold between Dubai, the market which supplies both the licit gold and illicit gold, and Mumbai, there is an arbitrage which increases because of the high rate of duty, which is exploited.

Hundreds of kilos of gold smuggled in

Hence, not a day passes without the enforcement agencies led by the Directorate of Revenue Intelligence (DRI) making a seizure—the latest being Rs 10 crore worth of gold being seized by the DRI in a pan-India operation on September 28. The gold was being smuggled in courier packets—the ingenuity of the smugglers, who attempt to smuggle gold in body concealment, suitcases, electrical appliances, powder form or paste form, through air and the land borders, is matched by the alertness and excellent intelligence of the enforcement agencies.

According to the reply to an unstarred question in parliament, 646.66 kg of gold was seized in the 2025-26 fiscal year—a steep fall from the quantity seized in 2024-25 when 2600 kg of gold was seized. This year, in the first quarter (April-June), again according to a Parliament question reply, 86 kg of gold has been seized by various enforcement agencies. But even they would admit (one estimate suggests that on average 34 tonnes of gold is smuggled every quarter) that not all that is smuggled is seized.

Also read: Buying gold? Go by how much your portfolio needs, not by bullion rate

The proceeds of smuggled gold (or any smuggled commodity) are outside the tax net and invariably used for other nefarious, criminal activity. The government has tried various schemes—sovereign gold bonds and gold monetization scheme apart from the schemes offered by banks and gold jewellers—all designed to bring out the gold kept in vaults. None of the schemes have been successful.

The gold paradox

That brings us back to the original question: Why are Indians selling gold? At one level, this is not a bad thing. It is estimated that India, between households and religious institutions, hoards nearly 24,000 tonnes of gold, assets which, if brought into the public economy, would help meet the insatiable appetite we have for gold. But a larger question which has been ignored in the debate is whether the unprecedented sale of gold reflects a deeper economic malaise?

So here lies the paradox: Gold being sold despite incessant demand, licitly imported, and also smuggled. This has to do with the multiple roles gold typically performs. It is seen as a saving, an asset which provides liquidity, an investment, a hedge, and a social asset. The prime minister’s call to avoid buying gold is an acknowledgement of the importance of gold in the life of the Indian citizen and the economy. And the jury is still out on whether it has been heeded.

(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the articles are of the author and do not necessarily reflect the views of The Federal.)