Gold jewellery a poor investment, financial gold shines brighter: Kotak

The warning comes at a time when the value of household gold holdings has surged, most of it locked in jewellery

Kotak Institutional Equities has delivered a sharp message to India’s gold-loving households: buying jewellery is among the poorest ways to invest in the precious metal. In its latest note, the brokerage argues that financial gold—such as ETFs, coins, bars and bullion—offers far superior efficiency, transparency and liquidity.

The warning comes at a time when the value of household gold holdings has surged, most of it locked in jewellery. Yet, Kotak points out that the so-called wealth effect is far weaker than it appears. The reason: buyers routinely pay hefty premiums through making charges and the cost of precious stones. Many of these stones have actually seen steady price declines, eroding part of the gains from the rise in gold prices.

As a result, Kotak estimates that household jewellery purchases delivered an internal rate of return of only 10.3 percent between FY2011 and the first half of FY2026—well below the 12.5 percent compounded rise in gold prices during the same period.

The report attributes gold’s sharp appreciation to strong global investment demand. In India, too, the recent price rally seems to have triggered a wave of FOMO, with retail investors pouring money into gold ETFs. Monthly inflow trends over the past six years reflect how closely investor appetite has tracked the metal’s ascent. Over the past two months, retail investors have even raised their exposure to financial gold at the expense of equities, it said.

Kotak notes that jewellery simply does not stack up as an investment. For households to merely break even, gold prices would need to climb another 25 to 30 percent—assuming, optimistically, that the prices of precious stones remain stable.

By contrast, investors in ETFs or pure physical gold (coins, bars or bricks) avoid the embedded costs that weigh down jewellery returns. The firm also highlights that a large share of India’s gold is held by lower-income households, often as a financial safety net or for major life events such as weddings and education.

Kotak said the trend has broader macroeconomic consequences. A rising household preference for gold over financial assets risks worsening India’s external balances. Higher gold demand directly feeds into higher imports, widening both the trade deficit and the current account deficit.

Kotak points to 15 years of data showing how closely net gold imports have moved with these gaps. Meanwhile, the traditional buffers—foreign capital inflows that once supported India’s balance of payments—have weakened, leaving the economy more vulnerable to swings in gold appetite.