Gold’s breach of the $4,000 per troy ounce threshold in October 2025 is not merely another headline; it marks a decisive turn in how the world prices risk, safety, and monetary trust. In India, the surge translated into 24k prices cresting well above ₹1.2 lakh per 10 grams across major centres, reshaping household behaviour, market plumbing, and public policy—all at once. The rally completes an arc that began with the pandemic-era stimulus wave, hardened through years of geopolitical fragmentation, and finally crystallised into a broad reweighting towards real assets. What began as a flight to safety has matured into a structural reset.
I. The Great Flight to Safety—And a Structural Reset
Gold’s 2025 melt-up bears all the attributes of a classic safe-haven dash: policy uncertainty, conflict risk, a softer dollar path, and repeated signals that interest rates are headed lower in real terms. That alone would have been enough to push bullion higher. But a deeper, more durable force is at work: portfolios—official and private—are being re-engineered. Central banks have continued diversifying their reserves into gold, not for speculative gain but as a sanction-resilient, geopolitically neutral store of value. Private investors have moved in tandem, not just by buying coins and jewellery, but by adopting liquid, listed vehicles that fit modern wealth-management rails.
In India, the shift is visible in record inflows into gold exchange-traded funds, record assets under management, and the financial mainstreaming of “paper gold”. This is not the froth of a moment; it is a behavioural and institutional pivot. The message is plain: when uncertainty is system-wide, people insure with permanence.
II. India’s Golden Transformation: From Counters to Demat
Three strands define India’s 2025 gold landscape.
First, the rise of listed and digital gold. Urban savers and advisers have embraced ETFs and dematerialised forms that deliver exposure without custody headaches, making gold a liquid building block in diversified portfolios. This is a profound cultural and financial change, converting a traditionally “lumpy” asset into something allocators can size, stagger, and rebalance with discipline.
Second, the formalisation of gold-backed credit. The Reserve Bank of India’s 2025 directions on lending against gold and silver collateral brought long-needed harmonisation to assaying, valuation, documentation and conduct standards across banks, NBFCs and urban co-operative banks. Tiered loan-to-value ratios and clearer consumer safeguards now allow households and MSMEs to tap liquidity without straying into predatory terms or sloppy collateral management. Properly governed, gold loans can act as a counter-cyclical shock absorber when credit tightens elsewhere.
Third, the import-management dilemma. As prices rise and listed channels proliferate, the pull on imports—and thus the current account—can intensify. Policymakers face a delicate balance: encourage financial claims on gold (ETFs, well-designed bonds) to reduce physical hoarding, yet avoid the kind of state-backed promises that turn market upside into public liabilities. This is where India’s most ambitious experiment—the Sovereign Gold Bond—now demands a candid reckoning.
III. SGBs: A Sound Motive, a Flawed Design
The Sovereign Gold Bond scheme, launched in late 2015, had elegant first principles. It offered households a dematerialised, government-backed substitute for physical bullion, with a fixed coupon and redemption linked to the prevailing 999 purity price. The hope was to keep savings within the formal system, reduce imports, and channel India’s deep cultural demand into a transparent financial claim.
In theory, this aligned everyone’s incentives. In practice, two design choices proved quietly explosive:
Full market-price redemption with no cap or collar, effectively leaving the sovereign short a perpetual call option on gold; and
A fixed coupon, payable regardless of the price path, turning the scheme into costly carry when bullion trends up for years.
With gold’s relentless ascent, the redemption obligation has ballooned. The gap between the issue value of outstanding bonds and their eventual market-price redemption is now vast, and the coupon keeps the meter running in the interim. Layer on staggered maturities extending into the next decade, and the State’s exposure becomes a long, convex tail that taxpayers must ultimately underwrite.
The second failure is strategic. SGBs did not sufficiently crowd out physical imports. Many households simply treated SGBs as a parallel bucket while jewellery buying persisted—especially around festivals and rites of passage. The stated macro objective—meaningfully easing the external account—has been only partially met, if at all, while the fiscal costs compound.
In short, the design socialised convexity risk onto the sovereign balance-sheet without delivering commensurate macro benefits. That is not sound debt management.
IV. Accountability: Who Framed the Scheme—and Why It Matters
Public finance requires public memory. The SGB scheme was conceived in the 2015 Budget framework, approved by the Union Cabinet that autumn, and launched in November 2015. At that time, Dr Raghuram Rajan served as RBI Governor, and Ratan P. Watal had just been appointed Finance Secretary, succeeding Rajiv Mehrishi, who held the post through most of that year before moving as Home Secretary.
Accountability here is not retrospective scapegoating; it is institutional hygiene. Citizens deserve clarity on three questions:
Forecasting: What scenarios did the original teams run on gold prices? Were high-percentile “tail” paths—those we now inhabit—duly modelled and discussed?
Design: Why a flat coupon layered on top of full-price redemption? Why no collar or participation rate to limit upside transfer from State to investor? Why no dynamic tranche sizing linked to price volatility?
Governance: Were ex-ante risk memos and scenario analyses formally signed off by the RBI’s markets departments and the DEA’s public debt office? Did periodic reviews adjust the design as gold rose?
A transparent, time-bound after-action review—ideally presented to Parliament and supported by independent audit—would strengthen future product design across all retail-facing sovereign instruments. India needs innovation; it also needs guardrails.
V. What to Do Now: Repair Without Reversal
A smart fix should preserve financialisation while removing the sovereign’s one-way bet. Four steps stand out.
1) Sunset the legacy template; relaunch with risk controls. Any successor to SGBs should swap “full redemption at whatever the market says” for a collared payout: investors participate in upside within a reasonable band, but extreme surges are partially capped. Alternatively, use a participation rate—for instance, 70–80% of upside—so the State is not underwriting the fattest tails.
2) Replace the flat coupon with a counter-cyclical coupon. A lower base coupon that steps up only if gold underperforms gives households comfort in dull years, while trimming sovereign outlay when bullion is sprinting. This aligns incentives across the cycle.
3) Introduce issuance discipline. Use a price/volatility filter to scale tranches. When gold’s z-score or trailing volatility breaches pre-set bands, trim sizes and tighten terms. Publish the rules so markets understand supply is not price-insensitive.
4) Build a visible risk buffer. Maintain an explicit Gold Reserve Buffer with mark-to-market disclosures each quarter. If the buffer is drawn down after a surge, the public can see why—and by how much—rather than being surprised at redemption.
Parallel to these bond-specific fixes, government should lean into ETFs as the primary outlet for household demand. ETFs pose no coupon cost, no state-guaranteed convexity, and fit neatly into modern brokerage and advisory ecosystems. If imports threaten the current account in seasonal bursts, authorities should prefer temporary, rules-based macro-prudential levers—for example, pre-announced duty corridors or TRQ adjustments—over ad-hoc, opaque measures that invite front-running.
VI. Gold Loans: Liquidity Without Landmines
India’s gold-backed credit ecosystem has shifted from patchy practice to clear rulebook. Harmonised valuation and documentation standards, tiered LTVs, and tougher conduct norms combine to reduce disputes, elevate consumer protection, and professionalise collections and auctions if defaults occur. The result is a financial safety-valve that households can use prudently—tapping liquidity at lower cost than unsecured loans—without fuelling leverage spirals.
The policy task now is to monitor aggregate leverage and loan recycling patterns as prices rise. When bullion is in a parabolic phase, supervisors must ensure lenders do not “evergreen by appraisal,” and that borrowers understand the implications of price drawdowns for top-up loans. In other words, use the rulebook not just to clean up practices, but to dampen pro-cyclical excess.
VII. Reading the $4,000 Print—What It Does and Doesn’t Mean
Gold’s breakout tells us that the world is repricing safety in a regime of higher macro variance. It also says that central-bank diversification is not a fad; it is a structural response to sanction risk and great-power rivalry. For markets, the practical takeaway is simple: expect a higher average price with fatter swings. For households, the lesson is to stagger entries, avoid leverage, and use listed vehicles that reduce friction and improve transparency.
For the State, the message is sharper. Public balance-sheets should not be structured as free upside insurance for private investors. If India wishes to encourage financial gold, it must channel demand into instruments where risks are priced by markets, not warehoused by the exchequer. The RBI’s modernised gold-loan framework shows how to marry access with prudence. SGBs—if they are to have a second act—must follow the same philosophy.
VIII. The Cultural Constant—and the Policy Variable
India’s affinity for gold is intergenerational. Parents will still buy for daughters; households will still save in sovereign-independent instruments they can touch, pledge, or pass on. Policy cannot—and should not—fight culture. What it can do is shape channels so that the nation’s savings are liquid, transparent, and macro-safe.
That is the point of honest accountability. By naming the officials and institutions that launched SGBs, we are not seeking to personalise blame; we are identifying a decision path so that the next retail sovereign product—whether linked to gold, inflation, or infrastructure—embeds scenario-thinking, risk-sharing, and automatic stabilisers from day one.
IX. Conclusion: Keep the Financialisation, Fix the Fragility
Gold’s new era is here. The safe-haven impulse has broadened into a rearchitecture of reserves and portfolios. India’s response should be equally structural: mainstream ETFs and other market-priced claims; professionalise gold-backed credit; and redesign SGBs to remove the sovereign’s asymmetric exposure. When the world is repricing safety, the State’s job is to channel, not chase; to buffer, not bet.
The Sovereign Gold Bond was a bold idea. Its promise can yet be salvaged—by admitting the flaw, assigning responsibility, and relaunching with better economics. In public finance, courage is not denying mistakes; it is designing around them so the next generation inherits both the wisdom and the wealth.