An economic slowdown in India, for various reasons, may negatively impact gold prices by triggering the liquidation of gold-backed collateral, according to the World Gold Council (WGC). In its Gold Outlook 2026 report, the WGC noted that while gold prices could rise by 5% to 15% by 2026, a downturn could lead to increased secondary supply, thereby exerting downward pressure on prices.
The council highlighted a positive outlook for India’s economy but cautioned that a severe global downturn, exemplified by the “Doom loop scenario,” might have spillover effects. In 2025, Indian consumers pledged over 200 tonnes of gold jewelry through formal channels, with informal lending likely involving a comparable amount.
Nationally, over 3,000 tonnes of gold have been pledged as collateral by consumers, according to the WGC. The report indicated that recycling rates for gold have been relatively low this year due to rising prices and the impacts of economic growth. Consequently, there has been a significant increase in the use of gold as collateral for loans. If recycling continues to lag while gold remains a collateral asset, it may provide some price support. However, widespread economic slowdowns could trigger forced sales, further increasing supply and negatively affecting prices.
Rising yields, a stronger dollar, and a shift towards risk-on investment strategies have added downward pressure on gold, leading to a marked reduction in investor interest. The WGC anticipates a price correction of between 5% to 20% from current levels due to the unwinding of hedges and softening retail demand. Additionally, Gold Exchange-Traded Fund (ETF) holdings might experience sustained outflows as investors gravitate towards equities and higher-yielding assets. Historical trends show that opportunistic buying from consumers and long-term investors could mitigate some of these downturns.
The WGC noted that demand from central banks and recycling supply are unpredictable factors that could significantly influence gold markets. Although U.S. economic data has been mixed and there are concerns about declining momentum, the overall shift in investor positioning leans towards defensive assets.
The report also mentioned that escalating geopolitical tensions could lead to increased purchases from emerging markets, providing structural support for gold. The outlook for 2026 will be shaped by ongoing geopolitical and economic uncertainties. The price may remain relatively stable if existing conditions persist. However, if economic growth decelerates and interest rates fall, gold could see moderate gains.
In scenarios of severe economic decline and rising global risks, gold may perform well. Conversely, if economic policies lead to accelerated growth and reduced geopolitical risks, this could result in higher interest rates and a stronger dollar, putting further downward pressure on gold prices.
Additional elements, such as central bank demand and gold recycling trends, may also impact market dynamics. The WGC emphasized gold’s continued role as a portfolio diversifier amid ongoing market volatility, suggesting that a recalibration of expectations related to artificial intelligence could dampen equity markets and contribute to a slower U.S. labor market, leading to weaker consumer activity and a global economic slowdown.
The WGC reported that gold prices increased by 60% in 2025, with the metal setting over 50 all-time highs amidst heightened geopolitical tensions, U.S. dollar weakness, and slightly lower interest rates. As of December 5, 2025, gold prices stand at $4,223.89 per ounce, with February futures at $4,255.15 per ounce. In India, gold prices in Mumbai have reached ₹1,28,592 per 10 grams, while February futures on the Multi Commodity Exchange (MCX) are quoted at ₹1,30,711 per 10 grams.
