Indian households are getting wealthier, says UBS; know key reasons why

Gold keeps shining brighter: Gold prices have increased by over 25% in just 2025. Since the start of this year, the yellow metal has been all the rage in the commodity market. Indian markets have a crucial relationship with the precious metal, with the country being the world’s second-largest gold consumer.

Gold is not just a metal or a commodity for Indians—it carries significant cultural and religious value, with its widespread use in traditional ceremonies like weddings. UBS has projected gold prices to surge to $3,500 (approximately ₹1.06 lakh per 10 gm) by 2026. For Indian households, this gold rush has a silver lining. Households in the country have long invested in traditional forms of gold, such as jewellery, coins and bars, and are now seeing a major surge in their returns. What was once bought as a tradition, sentiment or out of ancestral habits, is now proving to turn out as a wise financial decision. Let’s take a deeper look into gold’s bullish behaviour and future outlook.

Gold rally

A recent report by UBS has forecasted the gold price to jump to $3,500 by 2026. With escalating tariff uncertainty, a weak economic growth outlook and high inflation amid growing geopolitical risks, gold has become a compelling investment asset.

“As most of India's gold supply is imported (87%), higher global gold prices (although we expect softer gold volume demand) imply that India's net gold imports could remain high at US$55-60 billion (1.2% of GDP) in FY26-27,” UBS said in its report titled India and gold: all that glitters.

However, UBS expects India’s account deficit to be manageable because of additional buffers created after the pandemic in the form of trade surplus in services and higher remittances. This means that even though India might spend a lot on gold imports, it will earn money in other ways including growth in the service sector (like IT support).

Golden chance for Indian households

Indian households are becoming wealthier on the back of record-high gold prices, UBS said in its report. Historically, gold has been a preferred method of savings for Indian households. India was gold’s largest consumer of gold until 2013 and now stands in second place after China.

As per the World Gold Council, India has the largest stock of gold in the world with 25,000 tonnes held by households (including temples). This makes up for 14% of the total global gold stock. At current prices, India’s gold is worth approximately $2.4 trillion, 56% of the country’s nominal GDP in FY26, the report said. This stands beside India’s banking system credit, which accounts for nearly 55% of GDP. As per UBS estimates, Indian households’ imputed wealth, based on their gold holdings, has risen sharply due to the consistent surge in gold prices in the country, up 2 times since FY20.

Consumer demand for gold expected to soften in FY26 and pick up in FY27

As per the report, India’s gold demand, including jewellery and retail investment, is expected to fall by 7% YoY, moderating to approx 725 tonnes in the current fiscal, due to soaring prices. However, this demand is expected to rebound in FY27 on income boost from the 8th Pay Commission.

In the current financial year, while investment in gold is anticipated to remain strong, jewellery demand (which makes up for 70% of the total) could fall by 5%-10% YoY in volume.

“In general, while consumers respond to price fluctuations in the near-term by buying into dips and delaying purchases when prices rise, they eventually adjust to higher prices and underlying demand stays resilient over the long run, even as gold prices trend higher. We expect India's gold demand to recover to 800 tonnes in FY27E as household consumption stabilises and is supported by a likely pay boost of approx $55 billion,” the report noted.

The 8th Pay Commission, which is anticipated to provide an income boost of $55 billion during 2026-28, will help in the revival of gold demand in FY27. India revises the pay of central government employees every ten years based on the recommendations of the Central Pay Commission (CPC), which is due for revision in January 2026. The pay hike will benefit an estimated 18 million government employees and 13 million pensioners.

UBS expects a 15%-20% increase in total wages, which could lead to an increase in the comprehensive wage bill. “In our base case, we assume a 15-20% increase in total wages, leading to a likely increase in the comprehensive wage bill (central government + states + pensions + CPSEs) of about US$55bn (110bp of FY27 GDP). The public sector makes up around 40% of the formal workforce currently and pay revisions for government employees could indirectly influence wages in the private sector,” UBS said.

Based on historical data, pay boosts have led to higher savings for Indian households as compared to higher consumption. In household savings, physical savings like real estate and gold, recorded higher increases than net financial savings, UBS added.

India’s current account deficit

The current account deficit, with higher imports, is manageable in FY26 and FY27, UBS estimated.

As India imports 87% of its gold, higher gold prices mean that India’s net gold imports could remain high at $50 billion/$60 billion (1.2% of GDP) in FY26/FY27. However, the deficit is manageable (below 1.5% of GDP) driven by service trade surplus and remittance flows. With net gold imports, UBS expects a surplus of 0.4%/0.1% of GDP in FY26/27.

Policy efforts

Previous efforts to channel India’s household gold holdings into more productive uses, like controlling imports, have seen limited success. Indian households are using gold as collateral for bank loans and financial assistance from NBFCs to meet their short-term needs.

“As per UBS's NBFC analyst, the size of the collateralised gold lending market is small (< 2% of the outstanding gold stock). Most retail NBFCs are expanding into gold loans given the expected strong growth and lower credit costs. In our coverage, Bajaj Finance and Shriram's loan books consist of almost 2% in gold loans. Chola recently announced its entry into gold loans, and L&T Finance has made an acquisition to expand into gold loans. We have Buy ratings on Shriram and Chola,” the UBS report stated.

Titan’s rating

Even with high gold prices, most organised jewellers in India, like Titan, have performed well. UBS expects Titan to continue its aggressive network rollout to gain market share in the unorganised sector. However, with demand uncertainty and soaring gold rates, UBS has maintained a Neutral rating on Titan.

India’s gold schemes

The Indian government has taken consistent steps since 2015 to facilitate gold deposits, aimed at monetising gold for more productive uses to limit imports. Many schemes have been introduced with the view that this could increase household savings for productive uses, reducing effective demand for gold in the long run.

The STBD is a bank’s liability and can be repaid by the banks in gold or cash, as preferred by the depositor. The gold may be used by Minerals and Metals Trading Corporation (MMTC) to mint gold coins and to jewellers or may be sold to other participating banks.

In MLTBD, commercial banks were the facilitators with full liability falling on the central government. While deposits were in gold, the repayment was done in rupees. The initiative achieved limited success as only 31 tonnes of gold was monetised due to a lack of awareness among the masses, along with psychological barriers related to the emotional and cultural significance of gold jewellery. As a result, the government discontinued the MLTBD in 2025.