Gold’s Record Rally Dampens Consumer Demand
The government had started issuing Sovereign Gold bond in November 2015 and continued issuing 67 tranches with the last one issued in February 2024
Mumbai: Launched to wean away people from physical gold and reduce imports, the Sovereign Gold Bonds (SGBs) have led to a capital loss of Rs 93,284 crore (excluding interest payments) to the government after taking into account the latest redemption price of Rs 12,704 announced for 2017-18 Series IV as price of the yellow metal soared.
The government had started issuing Sovereign Gold bond in November 2015 and continued issuing 67 tranches with the last one issued in February 2024. As of October 23, outstanding SGBs stood at 125.3 tonnes. Taking into account the redemption price of Rs 12,704 announced for 2017-18 Series IV the total cost to the government would be Rs 1.59 lakh crore. When the issue of these units is taken into account it amounts to Rs 65,885 crore and a loss of Rs 93,284 crore to the government on account of increase in gold price. When the RBI started issuing gold bonds in November 2015, the price was around Rs 25,000/10 grams while the current price stands at Rs 1.29 lakh per 10 grams.
However, investors of SGBs have made phenomenal returns even as the government’s losses have only soared. For instance, the SGB 2017-18 Series IV has rewarded investors with an absolute return of 325 per cent in just 8 years. Additionally, investors earned an annual interest of 2.5 per cent. Similarly, the 2018-19 have given over 300 per cent return, SGB 2019-20 Series VI has offered over 200 per cent return.
The year to date price of gold has increased over 50 per cent in 2025 due to geopolitical tensions and a weak dollar. While the price came down to below $4000/oz for a few days in October, it has again moved above $4000/oz in November.
According to a new report by SBI Research, titled “Coming of (a Turbulent) Age: The Great Global Gold Rush,” said that the total consumer demand increased to 802.8 tonnes in 2024, which is 26 per cent of the global gold demand putting India at second rank, next just to China, with consumer demand of 815.4 tonnes. However, higher prices have led to lower demand of Gold in 2025. In Q3 2025 consumer demand of gold declined by around 16 per cent yoy, driven by reduced jewlery demand (-31 per cent yoy in Q3).
However, financial exposure to gold has surged with assets under management in gold exchange-traded funds (ETFs) jumping 165 per cent year-on-year, reaching Rs 90,136 crore in September 2025. Inflows into gold ETFs have grown 2.6 times in FY26 versus FY25. Similarly, gold-backed lending by banks has soared to Rs 3.06 lakh crore by March 2025, largely concentrated in southern states such as Tamil Nadu and Karnataka.
“Domestic supply of gold is only a fraction of the total supply of Gold in India, with imports contributing around 86 per cent of the total supply in 2024 (World Gold Council estimate). Gold imports increased around 31 per cent in FY24 and 27 per cent in FY25. Higher prices have however reduced gold imports by 9 per cent to $26.5 billion in FY26 Apr-Sep from $29 billion during the same period in FY25. Another interesting trend visible is the increase in gold reserves by the central banks. The RBI gold reserves rose to around 880 tonnes in 2025 as part of strategic reserve management,” added the report.
According to the report, the recent discoveries of new gold mines in various districts of Odisha as Deogarh, Keonjhar, Mayurbhanj (with an estimated 1,685 kg of gold ore detected by the GSI) among others, Jabalpur in Madhya Pradesh (estimated quantity could run into lakhs of tonnes) and Kurnool district in Andhra Pradesh (India’s first large private gold mine expected to produce 750 kg of gold annually) could help ease the pressure on imports and are positive for our current account balance.