Spurred by demonetisation, the ‘gold rush' is booming now

Hans India

22-04-2025

In 2016, when the Indian government announced demonetisation in an overnight decision, ₹500 and ₹1,000 notes were no longer valid. This led to shock and confusion among people and institutions alike. With limited time to deposit or exchange cash, people began looking for ways to protect their money, especially the unaccounted black money.
At that precise moment, the most viable option that stood out was going for gold. Indians, known for their traditional attachment to gold, saw the yellow metal as a safe and reliable way to convert currency into value. The result was a rush to buy gold in large quantities. This sudden and large-scale demand created a wave that still influences gold investment trends today.
The strong demand for gold during the demonetisation period wasn't just about buying jewellery. Wealthy individuals, business owners, and institutional investors looked for other gold-related options, including Gold Exchange Traded Funds (ETFs), Sovereign Gold Bonds (SGBs), and gold-based mutual funds.
Asset Management Companies (AMCs) began to actively promote gold as part of investment portfolios. Fund managers saw gold as a hedge to protect wealth from sudden economic changes or currency risks. It became clear that gold was not just a cultural symbol but a practical investment choice.
Presently, we are again seeing a sharp rise in the price and popularity of gold. The price has touched record levels and shot to over ₹90000 per 10 grams in India this month. Internationally, it exceeded $3,400 per ounce.
The reasons for this rise are both global and domestic. Global economic uncertainty, including wars, inflation concerns, and changing interest rates in developed countries, has made investors cautious. When investors fear instability, they often turn to gold, which for centuries together, has been considered a 'safe haven' asset. Even when stock markets fall, or currencies weaken, gold tends to hold or increase in value. That is exactly what is being enacted today.
Another reason for the rise in its prices is the weakening of the Indian rupee against the US dollar. Since gold is traded internationally in dollars, any drop in the rupee's value makes it more expensive in India.
But instead of a slowing down in demand, this has encouraged more people to buy gold. Many Indians see gold as the best bet to protect their savings from inflation and currency depreciation, given that gold often gives better returns than other investments.
The government's launch of Sovereign Gold Bonds (SGBs) has played an essential role in making gold investment safer and more productive. SGBs are backed by the Government of India and allow people to invest in gold without keeping it in physical form. These bonds offer an annual interest rate of 2.5 per cent, apart from the increase in gold price. They are also free from capital gains tax if held until maturity. Investors like them because they are secure, easy to buy and sell, and have no risks of theft or loss. Since 2016, the subscription to these bonds has steadily grown, and in the past couple of years, they have seen even higher demand.
Another popular option for investors is Gold Exchange Traded Funds (ETFs). These financial products represent physical gold and can be bought or sold on stock exchanges. They are highly transparent and reflect real-time gold prices. Unlike physical gold, there are no worries about purity, making charges or storage. Many investors now prefer Gold ETFs as a more innovative and flexible way to invest in gold. According to data from the Association of Mutual Funds in India (AMFI), gold ETFs saw strong inflows in 2023 and 2024, with individuals and institutional investors showing confidence in these products.
At the same time, we are also seeing a rise in the use of gold for loans and mortgages. Banks and non-banking financial companies (NBFCs) offer gold loans at competitive interest rates. It has become a popular way to raise money without selling gold, which stays with the bank or lender as collateral, and returned once the loan is repaid. Such methods are easier and quicker for many households to access credit, especially during emergencies or for small business needs. Even fintech platforms have joined this trend, making gold-backed lending faster and more convenient. The Reserve Bank of India (RBI) has occasionally relaxed rules related to the loan-to-value ratio of gold loans, making it even more attractive for borrowers.
Interestingly, another trend gaining popularity is the ability to buy gold through monthly instalments using credit cards or through dedicated gold subscription schemes.
Many well-known jewellery brands now allow customers to purchase gold in instalments through EMI. It implies that even those who cannot afford to buy large quantities of gold in one go can still become gold investors. These plans especially appeal to young working professionals, who see gold as jewellery for weddings and festivals and as part of their financial planning. These options have made gold more accessible to middle-class families and retail investors.
Several jewellers also run monthly gold-saving schemes where customers can deposit a fixed amount. The accumulated value can be used to buy gold at the end of the savings period, sometimes with bonus benefits or discounts. These schemes are usually promoted during festive seasons like Akshaya Tritiya or Diwali. But beyond cultural reasons, they are now also seen as disciplined investment plans, especially for women and families looking to save regularly. Fund managers across India advise their clients to keep five to 10 per cent of their investment portfolio in gold. It's a significant shift from earlier views, where gold was often treated as an unproductive asset.
The experience of demonetisation, the Covid-19 pandemic, inflation fears, and recent global events have made everyone more cautious. In such times, gold shines—not just literally, but financially. Many balanced advantage funds and multi-asset funds now include gold as a core component, offering investors protection against volatility in equity and debt markets.
India remains one of the largest consumers of gold in the world. But what is changing is the way Indians are investing in gold. From buying jewellery to investing through digital apps, mutual funds, and government bonds, it is now viewed as a traditional asset and a modern financial tool. What began as a rush during demonetisation has become a strong, steady trend. Today's rise in gold prices and the wide variety of investment options reflect a more profound change in India's financial behaviour. As we look forward, gold will likely remain essential to Indian households and investment strategies. Whether for cultural, emotional, or financial reasons, gold continues to hold its ground.
The government and financial institutions must continue to provide safe, transparent, and convenient ways for people to invest in gold. Educating the public about the various gold-related products and their benefits will also help improve financial literacy and inclusion. Demonetisation, per se, was perhaps short-lived, but its long-term impact on the Indian economy and investor mindset is clear. It showed us the importance of having flexible, reliable, and safe avenues to protect and grow our wealth.
In that journey, gold has once again proved that it is not just a precious metal but a timeless asset.
(The writer is Associate Professor, Program Head, PGDM Banking & Financial Services, Institute of Public Enterprise, Hyderabad)