Explained: What PM Modi’s comments on deferring gold purchases for 1 year mean for yellow metal investors?

In a speech delivered in Hyderabad’s Secunderabad, Prime Minister Narendra Modi urged Indians to avoid buying gold for the next one year, an appeal that stood out sharply in a country where the precious metal is not just an investment, but an emotion deeply woven into tradition, weddings, and household savings.

Gold, long considered one of the safest long-term assets for Indian families, carries cultural and financial significance across generations. Which is precisely why the Prime Minister’s remarks drew attention. But viewed through a broader macroeconomic lens, the appeal was less about discouraging investment and more about protecting India’s foreign exchange reserves at a time of rising global uncertainty.

India imports the overwhelming majority of the gold it consumes. Unlike domestically produced goods, gold imports must be paid for in foreign currency, primarily U.S. dollars. That means every surge in gold demand creates additional dollar demand in the foreign exchange market, as banks and importers purchase dollars to pay global suppliers.

The pressure becomes even more significant when combined with elevated crude oil prices. India already spends heavily on importing crude oil, electronics and industrial goods, and gold remains one of the country’s largest non-essential imports. When both oil and gold imports rise simultaneously, the trade deficit widens as more dollars flow out of the country than come in through exports.

In effect, the government’s concern is not merely about gold consumption itself, but about conserving foreign exchange at a time when global oil prices, geopolitical tensions and external vulnerabilities are already putting pressure on the rupee and India’s import bill.

So what do the Prime Minister’s comments mean for gold investors?

According to Jateen Trivedi, Vice President and Research Analyst for Commodity and Currency at LKP Securities, the appeal is unlikely to materially alter India’s long-term appetite for gold, given how deeply the metal is linked to savings behaviour, investments and cultural buying patterns.

However, he said the remarks could temporarily slow discretionary purchases, particularly in jewellery demand, while creating near-term caution across bullion and jewellery-linked businesses.

Trivedi added that gold prices continue to remain highly sensitive to global macroeconomic developments. According to him, a fresh rally in gold could emerge if geopolitical tensions intensify again, crude oil prices remain elevated, central banks begin moving toward rate cuts or the U.S. dollar weakens sharply.

On the other hand, gold could witness meaningful corrections if the U.S. Federal Reserve maintains a higher-for-longer interest rate stance, geopolitical tensions ease in a sustained manner, crude prices cool and institutional or ETF inflows weaken.

Meanwhile, Sameer Dalal of Natverlal & Sons Stockbrokers told ETNOW that he does not expect Modi’s appeal to significantly alter consumer behaviour in a country where gold buying remains closely tied to weddings and family traditions.

Dalal said consumers who intend to purchase gold jewellery are likely to continue doing so regardless of the appeal. While acknowledging the government’s effort to conserve foreign exchange, he argued that individuals would still prefer to make their own spending decisions, whether related to jewellery purchases or international travel.

He also said the possibility of higher import duties on gold cannot be ruled out. However, he pointed out that previous increases in duties have historically not stopped Indians from buying jewellery. Instead, consumers generally adjust by purchasing lower quantities as prices rise. A buyer with a fixed Rs 5 lakh budget, for instance, may end up buying less gold, but is unlikely to completely avoid purchases during weddings or important family occasions.

Dalal added that he is not negative on organised jewellery companies despite the broader uncertainty, as the formalisation trend within the economy continues to benefit large listed players.

At the same time, he cautioned that if the ongoing war drags on for longer than expected, FY27 could witness a steady cycle of earnings downgrades across sectors. According to him, the impact may not be visible immediately, but weaker Q1 and Q2 performances could eventually force companies to cut guidance, potentially weighing on broader market sentiment later in the year.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)