India’s Love For Gold Comes With A Macro Price Tag

Gold’s record rally in 2026 has reinforced its role as a key store of value for Indian households, but UBS warns that while high gold prices may make Indian households feel wealthier, they also create challenges for the economy, especially for inflation and the current account.

Gold prices crossed $5,000 an ounce for the first time this year and peaked at $5,111 earlier in January, driven by global uncertainty and policy concerns. UBS expects prices to remain strong in the near term.

For India, the price rally has significant macro implications. Gold accounts for a 1.1 per cent weight in India’s consumer price index (CPI) under the “personal care and effects” category. UBS noted that high gold prices have contributed meaningfully to elevated core inflation in FY 2025-26YTD. While headline CPI inflation remained benign at 1.7 per cent year-on-year during the period, core inflation stood at 4.3 per cent. Excluding gold, core inflation was lower at 3.0 per cent.

UBS’s sensitivity analysis suggests that a 10 per cent increase in gold prices, all else equal, could raise headline CPI inflation by 10 basis points and core inflation by 20 basis points, underlining gold’s outsized influence despite its relatively small CPI weight.

The impact is also visible on India’s external balance. Nearly 87 per cent of India’s gold supply is imported, making the economy vulnerable to higher global prices. Even as consumer demand for gold in volume terms has slowed over the past two years, India’s net gold imports in value terms have risen sharply. UBS estimates that gold imports will be at $72 billion, or around 2 per cent of GDP, in FY 2025-26, up from $58 billion, or 1.8 per cent of GDP, in FY 2024-25. This compares with an average of $40 billion, or 1.3 per cent of GDP, during FY21-FY24.

According to UBS, a 10 per cent rise in gold prices could widen India’s current account deficit by about 15 basis points of GDP. However, the firm expects the deficit to remain manageable in FY 2026-27, supported by buffers such as services exports and remittance inflows.

While India’s deep affection for gold continues to shape household savings behaviour, UBS says that the macro consequences of elevated prices are becoming increasingly visible. As gold prices remain high, policymakers may need to balance the asset’s role as a store of value against its inflationary and external-sector implications, it adds.