Here’s how rising prices of gold and silver are impacting the economy

Key macroeconomic data released over the past week reveal that the record high prices of gold and silver are impacting the economy. From retail inflation to imports and the trade deficit to mutual funds, these precious metals are leaving a mark across the economy.

Government sources point out that the rise in gold and silver prices is led by global and geopolitical developments and for now the government is keeping a tab on the impact on the economy. Rising prices of gold and silver accompanied by the fall in rupee can lead to challenges for the current account deficit, analysts have warned.

On February 12, the new consumer price index-based inflation series with a base year of 2024 was released. With higher weights in the new CPI inflation basket, rising prices of precious metals including gold, diamond and platinum jewellery and silver jewellery led to higher retail inflation at 2.75% in January 2026. This was a jump from the old series, which recorded retail inflation at 1.3% in December 2025.

In the new series, silver jewellery has a weight of 0.3127% as against 0.11% in the old series while gold, diamond and platinum jewellery and silver jewellery in the new series have a weight of 0.623% versus 1.08% in the old series.

Since the prices of gold and silver touched record highs, retail inflation in both silver and gold jewellery was amongst the highest in the items tracked in the new CPI series. CPI inflation in silver jewellery in January was the highest amongst all items at 159.67%. Retail inflation in gold, diamond and platinum jewellery was the fourth highest in the CPI basket in January at 46.77%.

Aditi Nayar, Chief Economist, ICRA, noted that while the year-on-year (YoY) inflation rates across 11 of the 12 divisions of the CPI ranged between 0.1% and 3.4%, i.e. below the 4%-mark, personal care, social protection and miscellaneous goods and services was the outlier with a 19% inflation, largely reflecting the boom in gold and silver prices.

India’s merchandise trade too was impacted by the rising prices of gold and silver in January. The merchandise trade deficit widened to $34.68 billion in January as imports climbed faster than exports due to pricier gold and silver. Merchandise exports rose 0.6% YoY in January 2026 to $36.6 billion while imports rose 19.9% YoY to $71.2 billion in the month.

A report by Crisil highlighted that gold imports surged 349.2% YoY after declining for the past two months. Silver imports, too, rose 127%.

Commerce ministry officials, however, pointed out that while the quantity of gold imported between April and December 2025 decreased its price increased significantly, leading to the rise in the import bill. The quantity and value of silver imports both increased substantially. In the case of gold, between April and December 2025, imports recorded a 1.83% growth in value terms, primarily driven by a 24.62% increase in unit prices, despite 18.29% decline in the quantity.

Similarly, the value of silver imports grew by 128.95% during April to December 2025 driven by a 46.69% increase in unit price and a 56.07% rise in the quantity imported.

Meanwhile, Indian investors also moved to gold exchange traded funds in January and flows to gold ETFs more than doubled to ₹24,039 crore in January surpassing the net inflows to equity mutual funds in the month.

A report by Kotak Institutional Equities noted that the surge in investment into gold ETFs globally implies massive speculation in gold (along with silver) possibly.. “…we are not sure if this is in lieu of the usual strong demand for physical gold or loss of confidence of a section of households in the modern monetary system, the foundation of modern economies, it said.

It also warned that the continued large inflows into gold ETFs (and consequent purchase/import of gold by ETFs), along with unabated imports of physical gold, may pose challenges to India’s current account deficit. Further, any reversal in recent foreign portfolio inflows to outflows may weigh on India’s balance of payments and large CAD and capital outflows will complicate reserve money creation, domestic liquidity and deposit creation.

“The purchase of financial and physical gold by households is tantamount to exports of capital from the country. The large and growing gap between net imports of precious commodities and stones and net FPI investment over the past 15-16 years is quite telling,” it warned.

On Wednesday on the Multi Commodity Exchange, gold futures were trading 0.28% higher at Rs 1,56,204 per 10 grams. Silver also gained 0.52% to Rs 2,48,832 per kg.