The Gold Rush: Indians have enough gold stored away to last several generations

IN 1848, GOLD was discovered at a sawmill in California. The discovery would change the course of US history and make gold the world’s most coveted metal.

As the news of the gold discovery spread, over 80,000 people poured into the ghost town of Coloma where the gold flakes had been discovered. A run-down town till then, Coloma witnessed over the next two years an influx of 300,000 prospectors seeking their fortune. A booming California acquired statehood in 1850 on the back of the Gold Rush. Nearby San Francisco in 1848 was a tiny port of 800 people. Within years, San Francisco became a gold magnet for Americans and foreigners, laying the future foundation of Silicon Valley.

Gold was coveted through ancient history. Egyptians mined gold in 3000BCE. Turkey used gold coins as barter currency in 700BCE. The modern gold rush centred on California, followed by Australia and South Africa between 1851 and 1886. All three territories were European settler-colonies.

India’s fascination with gold predates Egyptian mining of the yellow metal, going back to 4000BCE. Through millennia, gold has served as both a symbol of wealth for the aristocracy and a store of value for everyone else. So when Prime Minister Narendra Modi urged Indians to cut back on gold imports, it struck a raw nerve.

Indian households today possess an estimated 30,000-35,000 metric tonnes of gold valued at $5 trillion, larger than India’s nominal GDP. Gold has served Indians well. The price of 10gm of gold has risen from `937 in 1979 to `1,65,000 in 2026—an appreciation of over 175 times.

While this is stunning, it is dwarfed by the rise in equities during the same period—1979-2026. The Sensex was introduced in 1986 but with a base value of 100 going back to 1979. Between 1979 and 2026, the Sensex has risen from 100 to around 75,000 today—an increase of 750 times.

Therefore, between 1979 and 2026, gold has appreciated 175 times and the Sensex 750 times. Gold has risen at a compound annual growth rate (CAGR) of 11 per cent in 47 years from 1979 to 2026. This compares with the rise of the Sensex at a CAGR of 15 per cent. Thus both gold and stocks have proved to be tong-term stores of value—and Indians, with ancient wisdom, know this. That is why Indian families today hold 30,000-35,000 tonnes of gold. That is more than the gold held in total by the central banks of the US, Germany, France, Italy, and Russia.

But the key question is: When is enough, enough? India continues to import $72 billion worth of gold per year. With the West Asian war throwing India’s fiscal and trade maths out of gear, reducing gold imports with a 15 per cent gold import duty is an obvious temporary remedy.

Cutting crude oil imports—which in a normal year costs the Indian exchequer $120 billion—is not feasible. It can impact economic growth. India’s fiscal and current account deficit (CAD) calculations are based on crude oil at $70 per barrel. Assuming a medium-term price of $100 per barrel until the Hormuz Strait is reopened, India’s oil import bill will rise by around $25 billion in the next six months, assuming the war is long drawn-out.

Reducing gold imports by half from $72 billion for the next one year, to enable the fiscal and CAD maths to recover after the war eventually ends, could save India $36 billion gross in a year and $24 billion net after taking into account the impact of imported gold ingredients for jewellery exports. The saving of $24 billion on gold imports will cover the extra cost of oil imports for six months till Hormuz reopens and crude oil supply chains stabilise.

Indians have enough gold stored away to last several generations. They are also discovering that equities over a period of half-a-century have beaten gold as a store of value. That is why India today has over 226 million demat accounts. Money is pouring into mutual funds through systematic investment plans, more than making up for the flight of paranoid foreign investors.

In the long term, as economist JM Keynes said, we are all dead. But in the medium term, gold and equities are keeping Indians alive and kicking.