Material Insights · Understanding the Material World

Finance: banking, insurance, markets and Gold

Gold is a financial asset as much as a metal: central banks hold it as reserves, funds hold it for clients, and Indian lenders take it as loan collateral, so the gold price moves reserve values, fund flows and the size of India's gold loan book together.

Finance: banking, insurance, markets (industry) and Gold (commodity): 4 relationships.

How they are linked

1. Reserve asset

Physical flow · Strong · Gold to central banks and other financial institutions

Central banks hold gold as a reserve asset that carries no issuer's credit risk; the site rates gold 5 of 5 on criticality for central banks and regulators, and finds 4 enterprise types in finance that depend on it.

  • 863 t central bank gold purchases, 2025
  • about 880 t RBI gold holdings, March 2026
  • 16.7% gold's share of India's foreign exchange reserves, March 2026

Central bank buying slowed from 1,092 t in 2024 to 863 t in 2025 but stayed at the upper end of the World Gold Council's expected range. The RBI added nearly 58 t in 2024 to 2025 and then held its stock almost flat at about 880 t. Because reserves are valued at market prices, a rising gold price lifts gold's share of reserves without new purchases: the RBI's share rose from 9.32% in September 2024 to about 11.7% in March 2025, 13.92% in September 2025 and 16.7% in March 2026.

Enterprise types that depend on it:

  • Central banks and financial regulators: foreign-exchange reserves (criticality 5 of 5)
  • Commercial banks: gold-loan collateral and vaults (criticality 3 of 5)
  • Non-bank lenders (NBFCs and microfinance): gold-loan collateral (criticality 2 of 5)
  • Asset managers, mutual funds and pension funds: gold funds and ETFs (criticality 2 of 5)

Sources: Material Insights; World Gold Council; Business Standard; Outlook Money (PTI)

2. Funds and bar buyers

Physical flow · Strong · Asset managers buy gold for ETFs and funds

Gold exchange-traded funds must hold physical metal against the units they issue, so investor inflows turn directly into bullion purchases; the site rates gold 2 of 5 for asset managers and pension funds.

  • 801 t growth in global gold ETF holdings, 2025
  • 1,374 t bar and coin demand, 2025
  • 5,002 t total gold demand including OTC, 2025

ETF inflows of 801 t made 2025 the second strongest year on record, and together with bar and coin buying they offset an 18% fall in jewellery consumption as prices rose. Investment flows are the swing factor in gold demand: they reverse when real interest rates rise or risk appetite returns, unlike central bank buying, which has been steadier.

Sources: Material Insights; World Gold Council

3. Gold loan collateral

Cost and price · High in India · A higher gold price expands Indian gold lending

Indian banks and NBFCs lend against household gold jewellery up to a set loan-to-value ratio, so a higher gold price raises how much each borrower can raise against the same jewellery; the site rates gold 3 of 5 for commercial banks and 2 of 5 for NBFCs.

  • ₹3.38 lakh crore bank loans against gold jewellery, October 2025
  • 128.5% year-on-year growth of those loans, October 2025
  • 75% maximum loan-to-value for gold loans above ₹5 lakh, RBI 2025 rules

Gold loans grew far faster than total bank credit in 2025 as gold prices rose and borrowers moved to secured credit. The RBI's 2025 rules allow up to 85% loan-to-value on small loans of up to ₹2.5 lakh but 75% above ₹5 lakh. The link also runs in reverse: a sharp fall in the gold price erodes the collateral margin and can force auctions of pledged jewellery.

Sources: Material Insights; Business Today

4. Paper gold schemes

Policy · High in India · Government gold bonds and deposits link public debt to the gold price

India launched Sovereign Gold Bonds in 2015 to divert savings from physical gold imports, but the bonds repay at the gold price, so the government carries the price risk of the gold it did not buy.

  • about 147 t gold equivalent issued in Sovereign Gold Bonds across 67 tranches, to March 2025
  • over 70% rise in the gold price since the last tranche in February 2024, as of July 2025

With prices up sharply, the government stopped new tranches after February 2024, citing prudent debt management, and also closed medium and long term deposits under the Gold Monetisation Scheme from 26 March 2025. About 18.8 t of bonds had been redeemed by mid-June 2025, so most of the liability is still to fall due at prices well above issue.

Sources: Business Today

For investors

Key learnings

  1. Central bank buying of about 860 to 1,100 t a year in 2024 and 2025 gave gold a base of official demand that does not depend on retail sentiment.
  2. ETF and bar flows are the swing demand: 801 t of ETF inflows in 2025 can reverse quickly if real rates rise.
  3. Indian gold loan lenders grow with the gold price, so their loan books and asset quality are partly a leveraged bet on the metal.

What to track

  • Central bank net gold purchases: Slower official buying removes a key support under the price (Quarterly · World Gold Council Gold Demand Trends)
  • Global gold ETF holdings and flows: Outflows signal investors leaving gold, often as real yields rise (Monthly · World Gold Council)
  • Bank loans against gold jewellery: Fast growth shows rising leverage on household gold and collateral risk if prices fall (Monthly · RBI sectoral deployment of bank credit)

For policymakers

Key learnings

  1. Gold's share of India's reserves rises with the price as well as with purchases: it went from about 11.7% in March 2025 to 16.7% in March 2026 while holdings stayed near 880 t, which improves reserve adequacy but adds price volatility.
  2. Sovereign Gold Bonds moved gold price risk onto the public balance sheet; the pause after February 2024 limits new exposure but the outstanding bonds still repay at market prices.
  3. Rapid growth in gold lending is a household leverage question as much as a credit one; the RBI's 2025 rules tie the permitted loan-to-value ratio to loan size, from up to 85% on small loans to 75% above ₹5 lakh.

What to track

  • RBI gold holdings and share of reserves: Shows how much reserve value depends on the gold price (Half-yearly · RBI report on management of foreign exchange reserves)
  • Sovereign Gold Bond redemption prices and amounts: Higher payouts raise the fiscal cost of the scheme (As announced · RBI press releases)
  • Gold loan growth versus total bank credit: A widening gap points to stress in unsecured borrowing moving to gold (Monthly · RBI)

India

Gold is woven into Indian finance through RBI reserves of about 880 t, 16.7% of foreign exchange reserves in March 2026, through Sovereign Gold Bonds, and through a bank gold loan book that more than doubled in the year to October 2025.

Sources

  1. Finance: banking, insurance, markets: materials, Material Insights (2026)
  2. Gold Demand Trends: Full year 2025, World Gold Council (2026)
  3. RBI adds 58 metric tonnes of gold in FY25; share in reserves nears 12%, Business Standard (2025)
  4. Gold loans surge 128% to Rs 3.38 lakh crore as borrowers shift to secured credit, RBI data shows, Business Today (2025)
  5. Why no new Sovereign Gold Bonds? Govt breaks silence on pause amid soaring gold prices, Business Today (2025)
  6. RBI ups domestic storage of gold by another 104 tonnes, Outlook Money (PTI) (2026)