Volume of gold loans tripled since 2023, while default rates sharply increased in 2026

There is a significant rise in gold prices. Over the past five years since Dhanteras, gold prices have increased by 200 percent. According to Axis Direct, gold could yield a return of 20–25 percent by the next Dhanteras, with a target price ranging from 165,000 to 171,000 rupees per 10 grams.

Axis Direct noted that the domestic market price of gold has risen from 47,600 rupees per 10 grams in November 2021 to approximately 142,750 rupees per 10 grams. This represents an impressive increase of 24.53 percent in annual compounding.

Since the last Dhanteras, gold has shown a return of about 8 percent, which significantly surpasses the performance of the Sensex and Nifty indices. Nevertheless, gold is trading at a discount of more than 22 percent from its peak value of 180,000 rupees, and domestic prices are around 142,000 rupees per 10 grams.

Geopolitical tensions in the Middle East, the strengthening dollar, and interest rate hikes by the Federal Reserve are putting pressure on prices, raising concerns about the sustainability of gold's long-term upward trend. Previously, gold and the dollar index had an inverse correlation. The recent 4 percent rise in the dollar index has strongly impacted gold, confirming the trend that gold typically performs poorly when the dollar and bond yields rise.

Despite this, gold's growth is supported by consistent central bank purchases and inflows into ETFs. It was observed that current gold prices look attractive to investors as they have fallen by more than 20 percent from their peak. This presents a good opportunity for long-term investors who missed the rally to gradually add gold to their existing portfolios.

Internationally, the price of gold is set in US dollars, and India imports most of its gold requirements. Consequently, the exchange rate plays a crucial role in shaping domestic gold prices. When the rupee weakens, more rupees are required to purchase the same volume of gold, even if international prices remain unchanged. This increases the cost of imported gold and supports domestic prices.

From a technical perspective, Axis Direct reported that MCX Gold faced strong resistance at the 160,000 rupee level, which has gradually turned into a supply zone as prices have repeatedly attempted to stay above this level over the past seven months. Furthermore, a weekly close below the 20 EMA in September would weaken the bullish outlook.

According to the new report from Motilal Oswal, the long-term forecast for gold and silver is assessed as positive, and the price decline may present a buying opportunity. The document also presents target levels for the global and domestic gold markets.

In 2026, gold and silver prices showed significant volatility. After a period of record growth, both precious metals experienced a substantial decrease, but signs of recovery are now emerging. In this situation, investors are questioning the potential return of gold's luster or further price drops.

The new Precious Metals report from Motilal Oswal Financial Services (MOFSL) indicates that while price fluctuations may continue in the near future, the long-term outlook for gold and silver remains favorable. The report's headline states: «Gold’s Rally: Deferred, Not Derailed».

According to the report, in January 2026, the international market price of gold reached a record high of about $5,600 per ounce. This was followed by a sharp drop, and the gold price fell below $4,000 per ounce. Nevertheless, a subsequent recovery was observed. Silver also experienced similar fluctuations; after exceeding the $100 per ounce mark, it faced a serious decline.

Changes in the dollar and rupee exchange rates also influenced gold and silver prices in the Indian market. MOFSL notes that in 2026, the dynamics of gold and silver were more volatile compared to the previous year, driven by factors such as US interest rates, inflation, bond yields, and geopolitical events.

The tradition of buying gold in India during Diwali and Dhanteras has existed for a long time. According to the report, over the last decade, gold prices in the domestic market have risen significantly during Diwali. In 2016, the gold price during Diwali was around 30,000 rupees, whereas in 2026, it reached approximately 1.50 lakh rupees.

Historical data from the report shows that 30 days before Diwali, gold traditionally showed better returns compared to the subsequent 30 days. For instance, in 2025, the gold price increased by about 20% in the month before Diwali, and the silver price by almost 38%. However, the report also emphasizes that buying gold during festivals depends not only on international prices but also on the domestic premium, imports, and actual purchase volume.

Despite high gold prices, investor interest remains strong. According to the MOFSL report, the volume of assets in the global gold ETF increased by approximately 187 tonnes in August and September 2026. The total asset volume of the global gold ETF reached a record 4,256 tonnes. In the third quarter, a record investment of $31 billion flowed into the global gold ETF.

In India, investments in the gold ETF grew by 71% in September 2026 compared to the previous month, reaching ₹4,450 crore. During the same period, ₹1,970 crore was invested in the silver ETF. Meanwhile, against the backdrop of high prices and import control measures for gold, gold imports into India also decreased: $2.3 billion worth of gold was imported in August, and this amount reduced to $1.8 billion in September.

According to Navneet Damani, Head of Commodity Research at MOFSL, gold remains a safe-haven asset amid global economic and geopolitical uncertainty. However, in the near term, prices will be influenced by the policy of the US Federal Reserve, inflation, the dollar exchange rate, and bond yields. The report mentions that the US Federal Reserve raised interest rates by 25 basis points in September, bringing US interest rates to the range of 3.75–4%. High interest rates and a strong dollar may put pressure on gold prices.

On the other hand, persistent inflation, concerns over national debt, geopolitical tensions, and central bank gold purchases could support prices in the long run.

MOFSL commodity analysts, Manav Modi and Navneet Damani, have identified potential levels for gold. It is considered favorable for buying when the international market price of gold is in the range of $3,800–$3,900 per ounce. The short-term target for gold is set at $4,200 per ounce, and the medium-term target is $4,500–$4,700 per ounce. The report states that investors can gradually increase purchases when gold prices fall. However, these broker forecasts may change depending on market conditions.

For the domestic market, MOFSL provided estimates assuming an exchange rate of ₹96 per dollar. According to the report, the level of ₹1,35,000 per 10 grams is a favorable zone for buying. The short-term target for gold is set at ₹1,48,000, and the medium-term target is ₹1,60,000–₹1,68,000 per 10 grams. It is noted that investors should focus on gradual buying during price declines rather than chasing gains.

The rapidly growing gold loan market in India is showing early signs of strain. Companies Bajaj Finance and Piramal Finance are signaling payment delays and issuing loans to borrowers who have already defaulted on payments for over 90 days at other financial institutions.

These concerns arise against the backdrop of aggressive portfolio expansion of gold loans by banks and Non-Banking Financial Companies (NBFCs), attracted by the reliability of the pledged jewelry. However, creditors and analysts warn that the collateral may offer limited protection if borrowers take on new debt to service existing obligations rather than improving their financial standing.

According to Jairam Sridharan, Managing Director and CEO of Piramal Finance, between 15 and 23 percent of the total volume of gold loan disbursements in the industry in 2025-26 was directed to borrowers who had defaulted on at least one other outstanding loan for more than 90 days. He estimated the volume of such disbursements at 4.7 trillion rupees. Sridharan noted during the company's earnings call that this was a 'shockingly high figure.' He also added that such borrowers constituted less than 1 percent of Piramal Finance's own gold loan disbursements in October, emphasizing that the company does not lend to borrowers with more than 90 days of delinquency.

These figures point to a potential vulnerability in the rapid expansion of gold-backed lending: borrowers struggling with repayment may pledge jewelry to one lender to cover overdue loans with another, without achieving significant improvement in their debt servicing capacity.

Suresh Ganapathy, Director of Development and Head of Research at Macquarie Capital, stated that gold loans have become the second-largest category of retail lending in India after mortgages, accounting for nearly 28 percent of the unsecured retail loan portfolio. He advised creditors to look beyond the collateral provided by gold and assess borrowers' repayment capacity. While pledged jewelry can help creditors recover debts, it does not eliminate the risk of borrowers becoming increasingly indebted.

Bajaj Finance, whose gold loan portfolio stands at approximately ₹24,000 crore, reported an increase in Stage 2 assets in the quarter from July to September. For an NBFC, Stage 1 assets are loans with delinquency up to 30 days; Stage 2 assets are those with delinquency from 31 to 90 days; and Stage 3 assets are non-performing loans, typically with delinquency exceeding 90 days, classified as NPAs. The company attributed the rise of ₹1,047 crore to the introduction of short-term gold loan schemes following the implementation of revised gold loan guidelines by the Reserve Bank of India. However, in August, the company discontinued offering these short-term schemes, stating that the deterioration was mainly temporary and not expected to affect credit costs.

Rajeev Jain, Vice Chairman and Director of Bajaj Finance, stated that the company has adopted a different approach to managing repayment risks, preferring early intervention over relying on auctions of pledged gold. During the earnings call, he said, 'It is better to manage this through risks, not through auction,' adding that the company remains committed to developing its gold loan business. He also pointed out differences in how creditors handle delinquencies, noting that they generally allow loans to move to Stage 3 more readily before initiating auctions. However, Bajaj Finance does not consider auctions to be a suitable primary portfolio management tool.

Stage 2 and Stage 3 assets at the company increased by ₹1,601 crore during the quarter, with short-term gold loan schemes playing a significant role in the shift to Stage 2. The company reported that about ₹550 crore had already been settled and moved back to Stage 1. These changes are significant given the pace of gold loan portfolio expansion by lenders. According to the RBI, outstanding bank gold loans grew by 83 percent year-on-year to approximately ₹5.6 trillion as of August 31, 2026, while NBFC loans increased by 69 percent to approximately ₹3.6 trillion.

The segment's reliance on collateral can help limit losses. Ganapathy noted that the ability to sell pledged gold can support low loss levels upon default, but warned that a sharp correction in gold prices coinciding with rising defaults could call into question the assumption that collateral adequately protects creditors. He also questioned whether banks and NBFCs should actually finance the repayment of overdue loans owed to other creditors. He concluded that institutions rushing to expand in this segment risk underestimating the danger of borrowers taking on additional debt.

Risks can also vary depending on customer segments. Jinay Gala, Associate Director at India Ratings, highlighted the difference between borrowers in small towns, for whom gold may be their primary financial asset, and urban customers taking large loans for working capital or income generation. Their repayment capacity and existing debt levels can differ significantly. Ganapathy argued that losses on gold loans could remain low if extreme risks do not materialize. However, the broader issue is whether the rapid expansion of gold-backed lending is financing sustainable economic activity or allowing financially burdened borrowers to refinance debt.