An economic slowdown in India for any reason could turn out to be bearish for gold as it could trigger liquidation of the precious metal-backed collateral, the World Gold Council (WGC) has said.
This is because the yellow metal, which otherwise could rise by 5 per cent to 15 per cent in 2026, could boost secondary supply and put pressure on prices, the WGC said in its Gold Outlook 2026.
“…while there is a widespread positive perspective for India’s economy, a severe global downturn — such as the Doom loop scenario — could create a spillover effect,” the council said.
In India, consumers have pledged more than 200 tonnes of gold jewellery through the formal sector this year alone. “Anecdotal evidence suggests there is almost as much gold backing loans from the informal sector,” it said.
Over 3,000 tonne pledged
Over 3,000 tonnes of the precious metal have been pledged or offered as collateral by Indian consumers totally, the WGC said, adding that recycling flows could become a significant swing factor of gold prices.
Recycling of the yellow metal has been relatively muted this year after accounting for factors such as the rise in the gold price and the effect of economic growth. This led to a notable increase in the use of gold as collateral for loans, it said.
“If recycling remains subdued, with gold being used as collateral instead, it will continue to provide support.
But a marked economic slowdown in India could trigger forced liquidations of gold-backed collateral, boosting secondary supply and adding pressure to prices,” the WGC said.
Rising yields, a stronger dollar, and the shift toward risk-on positioning weigh heavily on the precious metal, prompting a notable withdrawal of investor interest.
Price correction
“With hedges unwound and retail demand softening, the backdrop turns decidedly negative, resulting in a gold price correction of between 5 per cent and 20 per cent, from current levels,” said the council.
Gold ETF holdings could see sustained outflows as investors rotate into equities and higher-yielding assets. Gold’s risk-induced premium, which has been a mainstay since the invasion of Ukraine in 2022, could decline.
However, historical analysis also shows that opportunistic buying from consumers and long-term investors could act as a buffer in this kind of environment, the WGC said.
Apart from these, central banks’ demand and recycling supply are “notable wildcards”. “These factors sit outside our traditional quantitative modelling for a few reasons, but could materially influence gold markets,” it said.
US economic data has been mixed, but market participants are concerned that momentum may be slowing. As risk appetite declines, positioning shifts to defensive assets, the council said.
Surprise may last
However, if geopolitical tensions escalate, emerging market purchases could accelerate, reinforcing structural support for the yellow metal, it said.
In 2026, gold’s outlook will be shaped by ongoing geoeconomic uncertainty. The price broadly reflects macroeconomic consensus expectations and may remain rangebound if current conditions persist, it said.
“However, 2026 will likely continue to surprise. If economic growth slows and interest rates fall further, gold could see moderate gains,” said the WGC.
In a more severe downturn marked by rising global risks, gold could perform strongly. Conversely, a successful outcome from policies set by the Trump administration would accelerate economic growth and reduce geopolitical risk, leading to higher rates and a stronger US dollar, pushing gold lower.
Other factors
Additional factors, such as central bank demand and gold recycling trends, could also influence the market. Most importantly, gold’s role as a portfolio diversifier and source of stability remains key amid continued market volatility, the WGC said.
A potential reset in AI expectations could act as an additional drag on equity markets. This could result in a softer US labour market, leading to weak consumer activity and global economic slowdown.
With the US Fed likely to cut rates, a combination of lower interest rates and a weaker dollar paired with heightened risk aversion, would create a continued supportive environment for gold, the WGC said.
Up 60% in 2025
The yellow metal set more than 50 all-time highs this year and was one of the strongest-performing assets in 2025. Prices of the precious metal soared due to a supercharged geopolitical and geo-economic environment, US dollar weakness and marginally lower rates.
Currently, gold prices are ruling at $4,223.89 an ounce, up 60 per cent in 2025. February futures of the precious metal are quoting at $4,255.15 an ounce.
In India, gold in Mumbai ended at ₹1,28,592 per 10 gm. On MCX, gold February futures were ruling at ₹1,30,711 per 10 gm.
Published on December 5, 2025
