Modi's Gold Warning: India's CAD and the US Dollar Connection
Indian Prime Minister Narendra Modi recently appealed to citizens to stop buying gold for a year, citing concerns over the country's current account deficit (CAD) and the impact of a strong US dollar on imports. The CAD is expected to widen to $84.5 billion in 2026, accounting for approximately 2% of India's total GDP.
The reason behind Modi's appeal lies in the fact that gold imports are linked to the US dollar. India is one of the largest buyers of gold in the world after China, with a significant portion of its gold imports coming from dollars. In FY26, India imported over $72 billion worth of gold, accounting for 9.29% of total imports.
Prithviraj Kothari, President of the India Bullion and Jewellers Association, noted that stopping gold purchases would have a psychological impact rather than a structural one, as weddings in India often embed pre-committed gold demand that is culturally non-negotiable. However, Modi's appeal may nudge discretionary buyers toward lighter jewelry, digital gold, or exchange-traded funds (ETFs), which do not trigger import demand.
The World Gold Council expects Indian gold demand to remain firm due to investment interest and geopolitical risks, despite a potentially below-normal monsoon and inflationary pressures. The council predicts that investment demand will continue to drive the trend, while jewelry demand may face pressure.