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The recent surge in gold prices has significantly increased the net worth of Indian households but has not translated into a corresponding rise in consumption, according to a report by Systematix Research.
The report highlighted that while the sharp rise in gold prices has boosted household wealth on paper but it does not appear to be a catalyst for a broad-based consumption surge. It stated, "Gold prices have significantly increased household net worth in India, it does not appear to be a catalyst for a broad-based consumption surge". The report also mentioned that historical and empirical evidence shows that consumption in India is primarily driven by real income growth, which has remained subdued in recent years, particularly in the post-COVID K-shaped recovery. It pointed out that the rise in gold prices mainly results in a notional wealth effect. This means the higher value of gold increases household net worth but does not lead to actual spending unless the gold is liquidated, which usually happens under financial distress. As a result, the wealth effect from gold does not effectively translate into higher consumer spending. The report also noted that other factors, such as declining household savings, moderating retail lending, and persistent income pressures, continue to weigh on consumption growth. These factors suggest that expectations of a consumption boost from rising gold prices are largely unfounded. Another perspective discussed in the report is that high gold prices have strengthened the collateral value of gold holdings, making them a useful asset for retail loans. This has created a secondary channel that could influence consumption demand to some extent. However, the surge in gold loans is seen as a reflection of underlying economic distress rather than a sign of stronger consumer confidence or higher spending. Indian households collectively own around 24,000 tons of gold, which accounts for nearly 11 per cent of the world's gold reserves in jewellery, according to the World Gold Council. The doubling of traded gold prices since 2024 has increased the total value of household gold holdings to about Rs 3.24 trillion, nearly equivalent to India's GDP, representing a 100 per cent rise in household net worth. Despite this remarkable increase in wealth, the report concluded that the rise in gold prices is unlikely to meaningfully revive India's sluggish consumption growth. (ANI)
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